Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
This appeared in the Freeport News, and I thought it worth sharing:
Why is it so hard to understand the justice and benefits of capturing the community created value of land for the community?
Classical economists such as Adam Smith and Henry George, defined land as all free gifts of nature (urban land, harbors, etc.).
These get value because people, both local and foreign, want them for personal or commercial use.
So, no matter who 'owns' the gift of nature (land) there is a location value called economic rent which is exclusive of any production on or from that location.
When economic rent goes into private hands (i.e., beaches are given away to corporations, land values are uncollected) legitimate government revenue is lost and taxes like the proposed VAT are applied to the production process.
Not only is land speculation rewarded but building houses, trading goods and services, etc. are punished by taxes.
Naturally people try to avoid these taxes by smuggling and other forms of corruption.
When economic rent goes to honest government it encourages better use of locations as there is no tax penalty to build or work.
It reduces pollution and pays for infrastructure that helped create the economic rent in the first place.
Why is this so difficult to understand? Why is there so much ignorance of it and opposition to it?
ON Sunday, the best climate policy in the world got even better: British Columbia’s carbon tax — a tax on the carbon content of all fossil fuels burned in the province — increased from $25 to $30 per metric ton of carbon dioxide, making it more expensive to pollute.
This was good news not only for the environment but for nearly everyone who pays taxes in British Columbia, because the carbon tax is used to reduce taxes for individuals and businesses. Thanks to this tax swap, British Columbia has lowered its corporate income tax rate to 10 percent from 12 percent, a rate that is among the lowest in the Group of 8 wealthy nations. Personal income taxes for people earning less than $119,000 per year are now the lowest in Canada, and there are targeted rebates for low-income and rural households.
The only bad news is that this is the last increase scheduled in British Columbia. In our view, the reason is simple: the province is waiting for the rest of North America to catch up so that its tax system will not become unbalanced or put energy-intensive industries at a competitive disadvantage.
Over dinner tonight, Milton Friedman's name came up, and I commented that in about 1978 and again in 2006, a few weeks before his death, Milton Friedman called land value taxation the "least bad" tax, but never lifted a finger in the intervening years to help promote it.
The carbon tax is another good, and wise, and just, tax.
How many economists will put their shoulder to getting it enacted?
How many will simply hang out in their ivory towers?
Let’s start with the economics. Substituting a carbon tax for some of our current taxes — on payroll, on investment, on businesses and on workers — is a no-brainer. Why tax good things when you can tax bad things, like emissions? The idea has support from economists across the political spectrum, from Arthur B. Laffer and N. Gregory Mankiw on the right to Peter Orszag and Joseph E. Stiglitz on the left. That’s because economists know that a carbon tax swap can reduce the economic drag created by our current tax system and increase long-run growth by nudging the economy away from consumption and borrowing and toward saving and investment.
What would a British Columbia-style carbon tax look like in the United States? According to our calculations, a British Columbia-style $30 carbon tax would generate about $145 billion a year in the United States. That could be used to reduce individual and corporate income taxes by 10 percent, and afterward there would still be $35 billion left over.
Why on earth should the privilege to pollute OUR air be be given away for free, or for less than the social costs it imposes on us? Who benefits from such a system?
A carbon tax makes sense whether you are a Republican or a Democrat, a climate change skeptic or a believer, a conservative or a conservationist (or both). We can move past the partisan fireworks over global warming by turning British Columbia’s carbon tax into a made-in-America solution.
28. Private-sector insurance companies are raising their rates for waterfront or near-waterfront property, or refusing to renew policies in hurricane-prone areas. States are stepping in to provide insurance of last resort. How should this be financed?
A. It should be self-financing, with rates designed to cover 100% of the risks. This might drive down the selling prices of the properties, but that is appropriate given the increased risks involved.
B. Taxpayers all over the state should subsidize the insurance rates, from taxes on wages
C. Taxpayers all over the state should subsidize the insurance rates, from taxes on sales
D. Taxpayers all over the state should subsidize the insurance rates, from taxes on their land values
E. Inland taxpayers should be taxed to pay for the subsidies to coastal propertyowners
F. Hotel and rental-car taxes should be used to pay for the subsidies to coastal homeowners and commercial property owners
G. Collect taxes in proportion to pollution which is producing slower-moving storms, which will have the effect of incentivizing reductions in that pollution
Verlyn Klinkenborg wrote a nice short piece about a factory farm in Clarion, Iowa. "The factory — no point calling it a farm — called Wright County Egg, is the source of 380 million of the more than 500 million recalled eggs."
When I was back a couple of years ago, I noted the most evident change, a significant population of Mexican workers. I hoped that they were able to love Clarion as much as I did. It’s unlikely, because I also saw where they worked.
When I was young, I thought I grasped the immensity of the Iowa landscape. The immensity of the soybean and corn fields has only grown because so many smaller farms have vanished as a result of government farm policy, which rewards economic concentration. As I turned off Highway 3 east of town, I saw that there was a newer immensity, the egg factories — an endless row of faceless buildings, as bland as a compound of colossal storage units but with the air of a prison.
It wasn’t simply that the operation is out of scale with the Iowa landscape. It is out of scale with any landscape, except perhaps the industrial districts of Los Angeles County. What shocked me most was the thought that this is where the logic of industrial farming gets us. Instead of people on the land, committed to the welfare of the agricultural enterprise and the resources that make it possible, there was this horror — a place where millions of chickens are crowded in tiny cages and hundreds of laborers work in dire conditions.
It takes only a little investigation to learn how bad things have been inside those buildings. The list of offenses for which the DeCosters and their farms have been fined in Iowa and Maine only begins with hiring children and illegal immigrants.
In 2000, Jack DeCoster, the operations’ founder, was named a “habitual violator” of Iowa’s environmental laws. His egg factories have been cited by OSHA for deplorable working conditions. In 2003, Mr. DeCoster paid more than $1.5 million to settle an employment discrimination suit charging that 11 women working in the Clarion plants had been subject to sexual harassment, including rape and threats of retaliation. There have been nearly 1,500 illnesses as a result of the salmonella outbreak. Every one of the billions of eggs produced this way has been tainted.
I am led to wonder whether this is the sort of "family farm" which those who campaigned to get rid of the estate tax sought to protect.
Let's think about what incentives we need to shift in order to return to a situation in which more people can earn a decent living off the land without mistreating creatures, polluting the earth, exploiting workers or endangering their customers. Or we can continue with the wealth-concentrating machine we've permitted.
What do we value? Whose voices will get our legislators' attention?
"I believe in the division of labor. You send us to Congress; we pass laws under which you make money ... and out of your profits, you further contribute to our campaign funds to send us back again to pass more laws to enable you to make more money."
-- Senator Boies Penrose (R-Pa.), 1896, citing the relationship between his politics and big business.
THE US and European economies are heading into a long period of weak growth and corrosive unemployment - and imposing a high price on carbon is the best way to resolve the funk, a visiting Nobel prize-winning economist says.
Joseph Stiglitz, a professor at New York's Columbia University, said the spending cuts and budget restraints increasingly being imposed by western governments were likely to prolong the economic stagnation triggered by the financial crisis.
In a speech titled Road to Ruin, Professor Stiglitz used an address at the Australian National University in Canberra last night to warn that the US government as well as many European governments were pursuing misguided policies in an attempt to rein in their debt.
And while Professor Stiglitz was pessimistic about the prospects for the global economy, he said that strong policies to curb carbon emissions could also help restore growth.
''The one basis for a global recovery, I think, is a high carbon price,'' he said. If governments imposed a tough price on carbon, businesses would have greater certainty to invest in new technology, which would drive growth.
Professor Stiglitz said that Australians had not felt the impact of the economic crisis.
''Here in Australia the only major contribution to the financial crisis was the anagram GFC,'' he said.
Almost a month ago (7/12), Martin Wolf, the Financial Times' chief economics commentator, posted a piece to his blog under this title. The last time I looked, perhaps 10 days after his initial post, there were about 150 responses. I circled back recently, and found that the comments count had risen to over 350.
This ended up as a heated debate. Nobody will be surprised if I conclude
that the result of the debate (often surprisingly ill-tempered) was
pro-LVT 10, anti-LVT zero. I am surprised by some of what the anti-LVT
proponents have said. I would have thought they would wish to open their
minds a bit. I did and was persuaded of the case, as a result. Is not
the purpose of such exchanges to learn from one another?
Some of the arguments addressed at the case for LVT are quite extraordinary.
The essential point is quite simple: the value of resources is created
by the economic activity of other factors of production. The owners of
these resources can become hugely wealthy and are often untaxed on that
increase in wealth: the Duke of Westminster is the richest Englishman
simply because he owns a large amount of land in a valuable part of
London. So why should he have command over the labour of so many other
That wealth is, in the strictest sense, unearned. If that rise in wealth
were taxed away, other taxes -- those on labour, capital and
entrepreneurship -- could fall. This would be both efficient (because
taxes on rent do not create distortions, as Ricardo showed) and also
just, because the wealth was unearned. Now, surprisingly, the UK allows
foreign landowners to enjoy the increase in value created by the British
economy, entirely tax-free. This is utterly crazy.
Let me add four other points.
First, throughout history, the main source of wealth was land-ownership.
The parasitic landowner became wealthy on the efforts of others --
peasants, tenants and even developers. Sometimes the parasite was also a
farmer or developer, but that does not change the fact that these are
two distinct economic roles. The parasite built fine castles and palaces
and often sponsored music and culture. But he was still a parasite. The
beauty of capitalism is that many of the wealthiest are no longer
parasites. This is good. But many of the wealthy still are parasites.
Moreover, now everybody wants to get rich by being a mini-landowner.
That is a huge diversion of effort.
Second, the financial system's ills are the result of unchecked
credit-creation. Yes. But unchecked credit-creation would be impossible
without collateral. Land is always the principal form of collateral
(buildings are a depreciating asset). That is why financial bubbles that
do not create credit booms (like the dotcom bubble) are economically
benign, while property bubbles are potentially catastrophic. When the
value of collateral collapses, the financial system implodes.
Third, there is really nothing new about this understanding of the role
of resource rents. They were central to the classical system, from which
modern economics, in its various forms, derives. Ricardo's analysis of
rent remains intellectually impeccable.
Finally, as Herman Daly has noted
(http://steadystate.org/modernizing-henry-george/), today economically valuable
resources are much more than just land (and what lies below it). They
include all the services of the biosphere - those that are appropriated,
those that are appropriable and those that are non-appropriable. If we
do not think seriously and intelligently about how to price resources,
we are likely to go seriously adrift, perhaps even into disaster. Here
land is the least of our problems -- it is appropriable and, by and
large, appropriated. So, at least, the price mechanism works, even
though the distribution of the gain is grossly unjust. But, in other
cases, no appropriation is possible, or at least it is not easy. Nobody
can appropriate the atmosphere. It is nigh on impossible to appropriate
the oceans. How do you own species diversity? These are serious
So, I conclude where I started: resources matter. It was a great mistake
to exclude them from the canonical neo-classical model. It is also a
great mistake not to tax their owners to the hilt.
The floods battered New England, then Nashville, then Arkansas, then Oklahoma — and were followed by a deluge in Pakistan that has upended the lives of 20 million people.
The summer’s heat waves baked the eastern United States, parts of Africa and eastern Asia, and above all Russia, which lost millions of acres of wheat and thousands of lives in a drought worse than any other in the historical record.
Seemingly disconnected, these far-flung disasters are reviving the question of whether global warming is causing more weather extremes.
The collective answer of the scientific community can be boiled down to a single word: probably.
“The climate is changing,” said Jay Lawrimore, chief of climate analysis at the National Climatic Data Center in Asheville, N.C. “Extreme events are occurring with greater frequency, and in many cases with greater intensity.”
He described excessive heat, in particular, as “consistent with our
understanding of how the climate responds to increasing greenhouse
Theory suggests that a world warming up because of those gases will
feature heavier rainstorms in summer, bigger snowstorms in winter, more
intense droughts in at least some places and more record-breaking heat
waves. Scientists and government reports say the statistical evidence
shows that much of this is starting to happen. . . .
If the earth were not warming, random variations in the weather should
cause about the same number of record-breaking high temperatures and
record-breaking low temperatures over a given period. But climatologists
have long theorized that in a warming world, the added heat would cause
more record highs and fewer record lows.
Recall that the US uses a disproportionate percentage of the world's oil and coal, and produces a disproportionate percentage of the world's greenhouse gases.
As poor people around the world -- and not-so-poor people, too -- contemplate America's place in the world, particularly when they are suffering from the effects of extremes of weather, are they likely to be willing to accept the notion that America is somehow special, and that it is the rest of the world that must adjust to us, or will they come to hold us accountable to the rest of the world's people?
When we wrap our minds around the implications of that question, we will come to the question of how we can reduce the demand for the kinds of energy which pollute the world's air.
Part of the answer will come from reducing, even reversing, urban sprawl, and setting our incentives so that our cities get re-developed more quickly and more effectively. This will also be good for the economy, creating jobs in the ongoing redevelopment process and then again in the new buildings created by this redevelopment.
What incentives? Start with the incentives which promote intense use of land well-served by taxpayer-provided infrastructure (highway systems, rail and subway systems, bridges, tunnels, air travel, etc.; water, sanitary sewer, stormwater management, etc.); and services (schools, police, ambulance, firefighting, street-cleaning, trash removal, recycling, public health, courts and prisons; public parking, etc.) Every one of those services serves to increase the value of land within the area served. Most of them contribute more to the land value than they cost. Yet we continue to fund them, in many places, with taxes not on land value but on wages or sales -- stupid taxes, to be blunt about it!
We can settle down and study the problem, or we can continue to do what hasn't worked yet. But not for long, and not for free. Our neighbors in the other 94% of the world are going to start holding us accountable at some point. Do we want to wait until it hits us, or do we want to get out in front of it?
And if we could, via a simple reform in the US, set an example that would contribute to prosperity in other countries, wouldn't we be wise to pursue it?
Inadequate taxes on mining means the people of Australia are being cheated and the economy is getting poorer, a Nobel Prize-winning economist told a crowd of 1400 people at The University of Queensland last night.
Professor Joseph Stiglitz shared his thoughts on the proposed mining tax in response to a question from an audience member during the seventh UQ Centenary oration.
“Natural resources lead to an appreciation of the currency and that leads to an imbalanced economy because it's hard for any other sector to do well, competing with imports or exporting,” Professor Stiglitz said.
“You're selling off your assets and in many cases you're selling them off at a very low price.
“If you are taking resources out of the country and you are not reinvesting those resources in one way or another – a stablisation fund, human capital, infrastructure – then your economy is getting poorer, not richer, and a good accounting framework can show that,” he says.
“When you're taking out natural resources from an economy you ought to have a subtraction from GDP - a firm that held a resource and was selling it off would take off depreciation and that would show up in its books as depreciation.”
Professor Stiglitz told a packed UQ Centre that Australia's economic stimulus package was the best designed in the world.
AND he said natural resources - coal, iron ore - should be properly valued at market just like the electromagnetic spectrum.
The government auctions the spectrum to the highest bidders who want to operate mobile phone networks, cable companies, television and radio stations.
Basically, a country - like Australia - will end up poor if doesn't get the best price for its assets - and natural assets are not renewable, once they are gone they are gone. If the proceeds from the sale of these assets are not invested in infrastructure to support and grow other sectors the economy (manufacturing and value-adding, goods creation) then a country and it's people will not prosper - HELLO! HELLO! Drowning not waving.
"It should be subtracted from Gross Domestic Product (GDP)," he said. "You are selling off assets at a very low price if you don't have adequate taxes on mining - you are being cheated," he said to audience applause.
He thinks resources should be auctioned off to the highest bidder - the free market at work. Of course, the mining industry will make all kinds of threats.
To everyone's amusement he joked about how mining companies bamboozled, threatened and bribed governments of developing, fragile nations.
"I assume that's not the case in Australia," he mused.
To prosper, a country needs to set up a stabilization fund (from a mining tax, if not a resources auction) for nation building.
This is what he calls an investment fund for building infrastructure and to grow value-adding industries, maintain education, job creation.
Not only that but the sell-off of natural resources should appear on a country's accounts as a kind of depreciation of assets - otherwise the accounts are not accurate. ...
He made these comments at the end of the oration after he explained the difference between the financial sector and the economy - the economy is not the financial sector.
The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40 percent of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.
"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."
The second account concludes with:
And as for Climate Change and the price of carbon and waiting for the rest of the world before we do anything?
Economies are not restructuring because there is no carbon price. The western world worries about the growing and changing consumption patterns of China and India.
Professor Stiglitz doesn't believe the West should begrudge them at all.
It's not consumption that's evil - it's profligacy. WASTE! Now, I wonder who wastes more the West or countries raising people out of poverty?
India and China will follow the wasteful ways of the West if the world fails to set a carbon price and force everyone to consume less to save the planet - the planet will force us to change in the end (*he says).
"If we had agreed to have a price on carbon at Copenhagen that would have been the answer," he said. "It would have provided an increase in global aggregate demand (global economic spending) as firms all over the world needed to retrofit (their business to meet pollution standards)."
So why is the US not hearing this advice? There is a lot here that speaks to issues which Americans would be wise to attend to. Alaska pays for a large portion of its costs by taxing its natural resources, and also provides an annual income to every permanent resident, of any age, from the proceeds of investing oil revenue into a broadly diversified portfolio, through the Alaska Permanent Fund. We have sacrificed many American lives in Iraq, but not produced a situation in which Iraq's oil revenue gets used either to finance infrastructure and government-provided services OR to provide an income to every citizen.
Re-read these excerpts with Iraq in mind, and then thinking of Afghanistan, and then of America.
I've not heard any really good answers to this question yet. Which is not to say that I don't think there are answers; they just aren't being widely discussed yet.
The answer lies deeper than the analyses which are commonly discussed. We need to shift our incentive system at a deeper level than what is currently being discussed.
We spend a lot of money heating and cooling older homes many miles from where people actually work. People commute long distances -- most of them via private cars because there aren't viable alternatives. Why do they live so far from their work? Usually because they can't afford to live closer.
The selling price of most housing within a commutable distance of any vibrant city is mostly land value. And most people don't know it.
Let me say that again.
The selling price of most housing within a commutable distance of any
vibrant city is mostly land value. And most people don't know it.
And they don't know why this is so, or realize that there is an alternative which would be desirable from virtually every point of view, or realize the far-ranging ramifications of this reality. And this is as true of people who hold graduate degrees in economics from our best universities as it is of people whose formal education ended with high school.
And the fact that the selling price of a home in a metropolitan area is mostly land value -- not value associated with the current structure -- seems to be invisible to most of us. As are the ramifications of the fact that houses -- like nearly everything else which is manmade -- depreciate! What appreciates is land value -- locational value -- and it appreciates for reasons which have nothing to do with the landholder himself.
The ramifications? I'll list a few here, but the list is very long.
As population grows and more jobs are in cities, population density in the city itself and the closest surrounding suburban rings needs to increase. What might once have served as large-lot single-family housing ought to give way to multi-family housing -- townhouses, low-rises, mid-rises. Vacant lots ought not to remain vacant for long. Low-rise commercial ought to give way to mid-rise commercial, or high-rise mixed use, with retail on the street level and housing or offices above.
More people living in walkable communities, with public transportation to move them to their work, reduces our reliance on cars.
More people living in technologically modern housing reduces the per-person fuel to heat and cool their living spaces.
Incentives which discourage redevelopment of underused sites are counterproductive
Incentives with encourage the prompt redevelopment of well-located sites to their highest and best use will reduce our reliance on oil and other non-renewable natural resources as well as the pollution associated with those fuels.
When we tax land value, we don't take from anyone value which they created.
When we tax land value, we reduce our reliance on income taxes and sales taxes.
When we tax land value, we can reduce our taxation of buildings and other improvements, which reduces the disincentives to redevelopment, to using modern techologies -- both of which create jobs.
When we tax land value, we reduce the selling price of housing, making it more affordable to ordinary people, and requiring them to borrow less. This frees up credit for activity which creates jobs.
When we tax land value, we stabilize our economy, reducing or eliminating the boom-bust cycles which afflict us roughly every 18 years.
2/23: I added a postscript to this one ... scroll down!
David Cay Johnston, first known to many of us as the tax reporter for
the NYT, and more recently the author of Perfectly Legal and Free
Lunch, and as a columnist for tax.com, last week brought to popular
attention a story which the IRS posted to its website without the
normal fanfare which announces a new piece of information there. Even
more interesting is the fact that it represents a return to the IRS
reporting data which was customarily furnished during the Clinton years
and suppressed by the Bush administration, who brought us substantial
tax cuts for the highest-income Americans -- and for the highest-value
(top 1%) decedents. As Andrew Leonard put it in Salon,
This is America, right? We've come to expect shocking statistics on income inequality. They're practically our birth right.
But then came the kicker:
The annual top 400 report was first
made public by the Clinton administration, but the George W. Bush
administration shut down access to the report. Its release was resumed
a year ago when President Obama took office.
Because you know, if you are going to reward the richest Americans with
tax cuts, it's best if you keep the rest of us in the dark as to just
how much money they're making, and how little they are paying Uncle Sam.
The new information relates to the top 400 income taxpayers. The data
published brings forward the series data, previously published for 1992
to 2000 (See http://www.irs.gov/pub/irs-soi/00in400h.pdf, published in 2003) to 2007.
Here are some of the highlights of the 2007 data:
The adjusted gross income threshold for being among the top 400 taxpayers rose from $24.4 million in 1992 to $138.8 million in 2007. In constant dollars, that was approximately a quadrupling in 15 years.
The average AGI among the 400 taxpayers rose from $46.8 million (192% of the cutoff) in 1992 to $344.8 million in 2007 (248% of the cutoff).
In 1992, the total AGI of the 400 represented 0.52% of the total
AGI for all taxpayers. In 2007, the 400 represented 1.59% of the total
AGI. In those years, total taxpayers increased from113.6 million to 143.0 million. The 400 represented .00035% of the households in 1992, and .00028% in 2007.
Over the same period, the average AGI for the remaining taxpayers increased from $31,781 to $59,798.
Salaries and Wages represented 26.22% of the Top 400's AGI in 1992; by 2007, that had decreased to 6.53% -- an average of $29.4 million per taxpayer, for the 306 who reported such income. 306 is the lowest figure since 1992.
All 400 reported Taxable Interest income. On average, they reported
$27.1 million. In total, their taxable interest exceeded their
salaries and wages. In total, their taxable interest was 4.04% of
total US taxpayer interest.
All 400 reported Dividend income, and their average was $24.5 million. Their dividends were 4.14% of total US taxpayer dividends.
The vast majority of their reported taxable income was in "Net
capital Gains less Loss in AGI": an average of $228.6 million each.
Their capital gains equaled 66.29% of their AGI, and 10.07% of total US
taxpayer capital gains.
Virtually all of their capital gains -- $226.4 million on average --were subject to preferential rates; this means they were "long-term" holdings, and were taxed at 15%. [And of course none was subject to FICA, on which the vast majority of those who labor pay 14% (more precisely, (7.65*2)/107.65, or 14.2%).]
49 reported net business income, averaging $3.2 million. More, 84,
reported net business losses, averaging $2.6 million -- they
represented 3.06% of the US aggregate.
202 reported Partnership and S Corporation net income, averaging $83.0 million. 185 reported Partnership and S Corporation net losses, averaging $25.2 million -- 3.52% of the US aggregate.
Their itemized deductions averaged $49.4 million, 1.46% of the US
aggregate; the average itemized deductions limitation was $5.4 million
-- they represented 5.4% of the US aggregate.
On average, they claimed "taxes paid" deductions of $13.9 million, and "interest paid" deductions of $9.9 million. Their "taxes paid" deductions represented 1.17% of aggregate deductions for taxes paid.
Almost all claimed contributions deductions, averaging $28.5 million -- 5.73% of the US aggregate. (Interesting that this is roughly equal to salaries and wages, or to dividend income, or to taxable interest income!)
Their Taxable Income grew from an average of $42.2 million to $296.2 million. In constant dollars, it increased 376%. In 1992, their taxable income represented 0.70% of the aggregate; by 2007, theirs was 1.95% of the total.
Their federal income taxes averaged $57.3 million; in total, the 400 represented
2.05% of the total paid, up from 1.04% in 2007. [Compare the former
percentage to their 1.59% share of AGI, and their 1.95% share of
Taxable Income.] Their average federal tax rate was 16.62% in 2007, down from 26.38% in 1992.
If we add the amount they claimed as a deduction for taxes paid to their federal income tax, their taxes represented 20.57% of their AGI in 2007, down from 32.12% in 1992. Their other taxes paid dropped from 5.74% of AGI in 1992 to 3.95% in 2007.
These 400 taxpayers paid a total of $28.4 billion in taxes,
federal and other, in 2007, on AGI of $137.9 billion and taxable income
of $74.7 billion.
In 2007, they paid $28.4 billion in taxes, federal and other.
Had their tax rate in 2007 equaled their tax rate in 1992, they would
have paid $44.3 billion in taxes, federal and other, or about $110.7
million on average, instead of $70.9 million.
Johnston's Tax.com article also points out:
The top 400 reports understate actual top incomes because of deferral
rules. For example, managers of offshore hedge funds who deferred their
gains may not be counted in the top 400 reports, which are based on the
figure on the last line of the front page of Form 1040.
At least three hedge fund managers made $3 billion in 2007. It is not known how much, if any, of their income they deferred.
Only 7 of the top 400 have shown up in the report every year, the IRS
data showed. Of the 6,400 returns covered by the 16 years of the
report, the IRS said that 2,515, or almost 40 percent, appeared one
The previous report (before the Bush administration suppressed
publication), said that less than 25% of the then 3600 returns appeared
more than once between 1992 and 2000.
A very useful table in DCJ's column shows that the income of the bottom
90% of taxpayers has increased by a mere 13% (in constant dollars) over
the 16 years.
How much of this income do you think they spent on consumer goods?
What do you think they did that helped stimulate our economy?
How many people do you think they employed, and what sort of wages did they pay?
What do you think this year's portion of each fortune will be worth upon the death of the recipient?
What do you think they invested their windfalls in? I'm guessing that a lot of it went into land -- urban land -- and non-renewable natural resources of one kind or another -- that which Will Rogers and others have pointed out is not being made anymore.
What industries do you think these fortunes are coming from? How have these people benefited from the boom-bust cycle which has victimized millions of Americans? What privileges have we-the-people granted them to reap what we-the-people sow? To what degree have they benefited from privatizing the commons -- things which rightly belong to all of us? What sort of contribution do you think these companies have made to pollution, to personal bankruptcies, to concentrating America's wealth in the pockets of a relative few? How many jobs have they moved offshore? Are they being paid in shares or stock options that burden their employer's shareholders? What sort of wages have they paid their employees at various levels on the pyramid? What sort of influence will they have over our next elections -- Senators, Congressmen, Governors, President, etc., -- and over future decisions to go to war in various resource-rich parts of the world? They can certainly afford to spend to influence public opinion in ways which benefit their interests, and to guarantee that they won't be taxed heavily, even if workers, who end up with little, are.
The article lists a number of people who will likely be in the 2008 second tier -- not the top 400, but clearly well into the top half percent, based on their selling Goldman Sachs stock; the article isn't clear about what their basis might have been in the stock -- but one sold shares worth $17.6 million plus $55.7 million (he may not be an American). Another, who ran the merchant banking business, sold $29 million worth. The article suggests that most of these sellers still have considerable amounts of Goldman Sachs stock; Lloyd Blankfein's 3.3 million shares are now worth more than $500 million. Should he sell, he'd be well onto the Top 400; the 2007 threshold was $139 million.
I'm guessing that many on the top 400 list in any particular year are people who have sold a privately held business to a large corporation. They've paid 15% on the capital gains, and will likely rail against paying an estate tax on the other 85%.
As I watch the mid-Atlantic states dig out from heavier snows than they are accustomed to dealing with (or budgeting for), the question of how we ought to finance such costs comes to mind.
Let's review the choices.
We could tax wages.
We could tax capital income (dividends, interest, appreciation of capital - a/k/a capital gains).
We could tax sales of goods.
We could tax services.
We could tax corporate profits.
We could tax specific kinds of transactions: e.g., stock sales, property transfers, tobacco sales, luxury goods, imported goods.
We could tax pollution.
We could tax buildings.
We could tax land value.
We could impose user fees.
It is very tempting, of course, to recommend that We tax whatever I have the least of. That's the "don't tax you, don't tax me; tax the guy behind the tree" approach, and many people never move beyond it in their thinking about taxation. It is one of the factors that causes us to rely on taxes which fall on people who have relatively little. (Remember Leona Helmsley's statement -- "WE don't pay taxes; the little people pay taxes." -- I don't think she was talking about tax evasion; she was describing how we've structured things.)
When we tax wages, we take from people that which they create. We discourage them from working, from producing, from contributing.
When we tax dividends or interest, we discourage savings and investment. Our corporations need capital. (Notice, however, that when one buys an existing share of stock from another investor, the corporation is not getting a new infusion of capital; what is changing hands is the entitlement to an actual or potential stream of dividends, and to a payment of some size if management decides to sell the corporation to another corporation or some private entity.)
When we tax capital gains, what we are taxing is a mixed bag. Capital does not appreciate. As anyone who has left a home unoccupied for a few months knows, as anyone who has owned a car knows, buildings and machines and the like do not appreciate. They depreciate, even with the best of maintenance. Most "capital" gains are actually either appreciation of land, or relate to the extraction of scarce -- nonrenewable -- natural resources. (Much of what is taxed by the estate tax, too, relates to one of these kinds of gains, which have NOT already been taxed elsewhere in our system. Taxing them once per generation, particularly when there are huge concentrations, is better than not taxing it at all.)
When we tax sales of goods, or sales of services, we impose both on the purchaser and on the buyer; by raising the price of goods or services, we lower the demand for them.
When we tax corporate profits, we encourage corporations to move those dollars to another country. And they are happy to oblige.
When we tax transactions of various kinds, we discourage those transactions. That can be a good thing or a bad thing. If we are discouraging hedge funds from skimming profit away from the market, many would argue this is desirable. If we are discouraging the flipping of houses by making it less profitable, many would argue this is desirable. Some would argue that discouraging liquor, or tobacco, or recreational drug transactions is desirable. Some would argue that discouraging trade with other countries is desirable. (Others would take the position that Henry George took: that it is doing to ourselves in peacetime what other countries might seek to do to us in war!)
When we tax pollution, we should get less pollution.
When we tax buildings, we should expect to have slower redevelopment, poorer maintenance, less investment in energy-conserving technologies and renovations, fewer highrises and less vibrant cities. We will certainly have fewer people employed in these activities or in spaces created by them.
When we tax land value, what happens? To quote the eminent economist Lowell Harriss,
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.
But we don't have to figure this out over and over. Adam Smith, in The Wealth of Nations, provided us with the canons of taxation -- the criteria by which to judge the various options. You might take a look at these two pages on the subject:
All those goods and services whose effect is to maintain or increase property values -- land values, since buildings depreciate -- should be financed via taxes on land value. We should avoid taxing any of the other possible tax bases at all until we have fully taxed land value. (At this point, you might be wondering what it means to "fully tax land value." Generally, it means to collect something approaching 100% of the annual rental value of the land itself. Quick and dirty, that's about 5% of what the selling price of the land would be in the complete absence of a tax on it. So if a lot would currently sell for $100,000, while bearing no annual tax on land value, the annual land rent would be about $5,000. Land value taxes up to that amount do not place a burden on the landholder. Collecting 100% of that amount would reduce the selling price of the land to a token level, but would not reduce its annual rental value by a penny.)
A few lifts from an interesting paper. It speaks only to oil usage related to cars, putting aside heating oil and other uses of oil.
What it misses is the fact that our incentives are aligned to create sprawl, and that until we realign them, we aren't going to get smart growth. Readers of this blog know that the first realignment -- necessary, if not sufficient -- is a reform of the conventional property tax, shifting taxation off buildings and onto land value, followed by a shifting of more of the tax burden off sales and wages and onto land value. When we tax land value heavily, only good things happen --
from the point of view of the environment,
from the point of view of efficiency,
from the point of view of the economy,
from the point of view of encouraging smart growth,
from the point of view of job creation and affordable housing,
from the point of view of dense cities and walkable cities and effective public transit which people want to use and are willing and able to rely on, day in and day out.
The NRDC is not going to achieve its goals without the tool of land value taxation. "Targets" and "funding" are all well and good, but they don't counteract the current disincentives that our system of taxation creates. I'd be happy to provide the NRDC folks with material which will help them understand the needed change.
Good public transit systems can be fully funded by the increased land value they create.
From their paper:
America’s dependence on oil is problematic in several ways, including the following:
The United States has less than 2 percent of the world’s oil supplies but is responsible for about one-quarter of the world’s oil consumption.2 We import almost two-thirds of our crude oil supply from foreign countries, and more and more of the world’s future supply will come from regions that are either politically unstable or unfriendly to U.S. interests.3
Our unstable supply of oil threatens our national economy, particularly since about 96 percent of our transportation system relies on oil.4
Oil consumption is a leading contributor to the greenhouse gas (GHG) emissions that cause global warming. In the United States, the oil-based transportation system is responsible for roughly one-third of our global warming pollution
Smart growth and public transit. States can reduce oil dependence by integrating land use and transportation policies and designing them to reduce vehicle-miles traveled and promote alternatives to driving. Nineteen states, including Hawaii, Georgia, Tennessee, and Maine, have adopted smart growth measures intended to curb sprawl and reduce the associated traffic and vehicle-miles traveled. Fourteen states have created an agency or other mechanism to develop and coordinate land use policies. Six states have set targets for reducing vehicle-miles traveled. In addition, some states — led this year by New York, New Jersey, and Washington — have prioritized the funding of public transit through the allocation of state funds and/or by transferring portions of their federal highway dollars.
Nineteen states have growth management acts. Among the most comprehensive ways of promoting smart growth is growth management legislation, such as Washington’s Growth Management Act (GMA). This GMA affects 29 counties (95 percent of Washington’s population) and requires, among other things, policies covering sprawl reduction, affordable housing, open space and recreation, environmental protection, natural resource industries, permit processing, concentrated urban growth, regional transportation, historic lands and buildings, and public facilities and services.13 Despite Florida Governor Crist’s weakening of his state’s growth management laws this year, growth management legislation was still one of the areas of greatest improvement from last year, when only 12 states had such laws.
Only six states have set targets for reducing vehicle-miles traveled. For instance, the state of Washington amended its GMA to make it even more effective at lowering oil consumption, calling for reductions in per capita vehicle-miles traveled (VMT) of 18 percent by 2020, 30 percent by 2025, and 50 percent by 2050.14
Fourteen states have an agency or other mechanism to coordinate development. Many states have recognized that several different state entities influence development, sometimes in potentially contradictory ways, and have created mechanisms to coordinate public investment that supports development. In 2003, Massachusetts established a powerful Executive Office of Commonwealth Development.15 Such coordination is a vital first step toward smart development, enabling a state to take into account the wide range of relevant influences. We encourage states to use coordinating mechanisms to promote smart growth.
Some states have prioritized the funding of public transit. Public transit systems, such as bus, commuter rail, subway, and light rail programs, are important components in state efforts to promote smart growth and reduce oil dependence. By creating or expanding reliable and accessible public transit programs, states can reduce the number of single-passenger cars on the road, consequently lowering average VMT. And strong public transit provides a critical transportation alternative as gas prices rise. A case in point: Americans drove 1.4 billion fewer highway miles in April 2008 than in April 2007 because of soaring fuel prices; many took trains or buses instead, leading to a surge in transit ridership.16 In 2008, public transportation saw its highest level of ridership in 52 years.17
States have the ability to “flex” certain federal funds that ordinarily would be spent on highway projects and use them to pay for public transit programs. States that choose not to transfer federal funds to transit programs are not necessarily neglecting transit funding, however, as they may be spending more state dollars on transit. The best way to understand state transit prioritization is to compare the amount of total state spending (including flexed federal funds) on mass transit with the total spent on highway programs, as shown in the far right column of Table 3. By this measure, the top five states prioritizing public transit spending are New York, New Jersey, Washington, Massachusetts, and Utah.
"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
Polly Cleveland (the Georgist who surprised me some years ago when she told me that she'd initially found Progress & Poverty to be a page-turner, a major contrast to my experience on first reading it) sent out this book review this morning, and, with her permission, I am sharing it here.
REVIEW Unjust Deserts : How the Rich Are Taking Our Common Inheritance
and Why We Should Take It Back, by Gar Alperovitz and Lew Daly
Isaac Newton and Gottfried Wilhelm von Leibniz simultaneously invented
calculus in the 1670's. As Isaac Newton wrote, "If I have seen far,
it is because I have stood on the shoulders of giants." Charles
Darwin mulled over the origin of species for 20 years until jolted into
publication by the arrival of a manuscript from Alfred Russel
Great geniuses and great entrepreneurs make the strongest possible case
for outsize rewards based on merit. Yet as Alperovitz and Daly argue,
these giants drew their ideas from society around them. And they were
often very lucky. For almost any modern invention, there are several
potential claimants -- even if only one actually got the
The authors review the writing of a long line of the economists and
philosophers, starting with John Locke, Adam Smith, David Ricardo, John
Stuart Mill and Henry George, through Thorstein Veblen, Edwin Cannan and
Frank Knight to modern economists and philosophers including Robert
Solow, John Rawls and Amartya Sen, as well as economic journalist David
Warsh. From these, they develop three basic propositions:
Locke: that an individual has a right to that which he actually creates
by his own unique efforts.
Second, from Ricardo: the demonstration that
unearned income -- economic rent -- is created not by individuals but by
Third, from Mill and others: the judgment that such
income should belong to society as a whole.
Alperovitz and Daly add their own original fourth proposition: the more
advanced a society becomes, the more each of us depends not only on those
around us but also on those who came before -- and bequeathed to us their
knowledge. Moreover, "this past buildup of knowledge should be
treated as a common inheritance." The wealthier our society
becomes, the less any individual can rightfully claim a large share of
the wealth. That makes our present growing inequality profoundly
Georgists will find this book a treasure trove of arguments and
quotations from scholars, obscure and famous, expressing views similar to
those of George.
in 1854, Scottish philosopher Patrick
Edward Dove wrote that the "principle of allocating the rent to the
community, instead of to individuals" would "secure to every
laborer his share of the previous labors of the community."
And from George's contemporary, Edward Bellamy, "All that a man
produces today more than his cave dwelling ancestor he produces by virtue
of the accumulated achievements inventions and improvements of the
intervening generations together with the social and industrial machinery
which is their legacy."
According to George, wages depend upon the margin of cultivation,
"the highest natural opportunities" open to labor. Drawing from
George, John Bates Clark created his theory that factors of production
receive their marginal product, wages for workers and interest for
capital. (Clark merged land with capital.) But Clark turned the marginal
product argument against George, claiming that workers in fact
deserved what they were paid. Of course Clark ignored George's
central theme: that the margin in turn depends upon the distribution of
land ownership. Alperovitz and Daly add a further rebuttal to Clark,
citing a 1914 article by Walter Adriance, that Clark's error lies in
"not attributing to the cooperation of the rest of the group any
part of the so-called 'marginal product.'"
Alperovitz and Daly offer the usual liberal proposals for income and
inheritance tax reforms, with which I don't disagree. But although they
identify economic rent as rightly belonging to society, and cite George
several times, they suggest no direct strategies for collecting rent for
public purposes. In fact, they even claim "skyrocketing"
property taxes burden the middle class! If we really hope to take back
our common inheritance, we must strengthen the property tax, which is our
original wealth tax. And we must go after rent wherever it pops up -- not
just land titles, but oil leases, broadcast licenses, patents, bank
charters, pollution "rights", fishing quotas, even taxi
I send Econamici--occasional emails with interesting attachments or
links--to friends who are economists or care about economic issues. If
you can't follow a link, I can send you the actual article. Please let me
know if you want to be removed. Past Econamici are posted to
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/
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.
A few weeks ago there was a brief piece in the NYT Magazine entitled "Gallons Per Mile." It got me thinking; my noodlings follow the article itself:
As gas prices rose earlier this year, consumers started paying a lot
more attention to their cars’ miles per gallon. Good luck with that.
The apparently simple unit of measurement is a highly misleading one,
as two Duke management professors demonstrated in a June issue of
Science. They favor an alternative measure of fuel economy: gallons
consumed per 10,000 miles.
The problem with m.p.g., argues Richard Larrick, who wrote the article
with his business-school colleague (and carpooling partner) Jack Soll,
is that it leads consumers to significantly underestimate the gains in
fuel efficiency that can be achieved by trading in very low m.p.g.
vehicles — even for one that gets only a few more miles per gallon.
Less detrimentally, m.p.g. also misleads people about the fuel savings
achieved by moving from an ordinary family sedan into a Prius.
John Fisher wrote an excellent Letter to the Editor, published in the Chatham Daily News, which I think worth sharing:
Sir: Re: Boom and Bust Cycles.
No matter how many billion-dollar crutches (bailouts, stimulus) are
thrown at the current economic downturn, up-and-down cycles will
continue until the "experts" get back to Economics 101.
Adam Smith, David Ricardo, Henry George and other classical economists
correctly defined land (free gift of nature), labour and capital as the
three factors of production. Land or nature, not being created by
labour, is not capital. Unlike privately created wealth, nature only
gets value from the presence and activity of the community as a whole.
The economy is often compared to a house or a ship, but usually without
reference to the lot or water upon which they absolutely depend. All
the good things the experts now suggest to improve the house or ship
will ultimately determine the value of the underlying natural base,
depending of course on human pollution, over and restricted use, etc.
Giving nature a value like we do now for land and then capturing it for
the social good would reduce urban sprawl and waste of resources, while
rewarding quality and quantity in the production process.
Many classical economists, including Henry George, would shift taxes
from private wealth (the house) to public wealth (the land). In other
words, pay for what you take from nature and not what you make
privately. With little cost to government, this simple tax shift would
remove unearned income from resource speculation and enable tax
reductions on wages and business.
Until economic justice and reason prevail with a major tax shift from
production (jobs, houses, trade) to resource values (raw land, water,
oil) the world will continue to suffer from monopolies of nature and
If you'd like to know more about these subjects, from a Georgist point of view, you might explore these pages:
Adam Smith, boom-bust cycle, classical economists, commons, David Ricardo, economic downturn, factors of production, Henry George, pay for what you take, privatization, speculation, tax shift, unearned income, unearned increment
As I listen to and read about attempts to reduce pollution, reduce reliance on foreign oil, reduce energy usage, I find myself frustrated by the lack of radicalism in the answers people propose. Their answers aren't wrong, but they don't go to the source of the problem, and so merely nibble around the edges. Nibbling is fine and admirable, and definitely has its place. And nibbling will make a bigger difference if they are nibbling at a circumference of 2X instead of X, though a larger percentage difference if we can get to a circumference of X.
The current Vice President asserted a few years ago that the American way of life was non-negotiable.
Well, if that means that what is is good -- the ultimate conservatism -- keep things just as they are because we live in the best of all possible worlds -- or -- it works just fine for my and my kind thank you very much -- a case one might reasonably make if one were in the top 1% of the wealth and income spectra, which, as I frequently mention here, receive a very disproportionate share of the productivity in this country:
The top 1% of income recipients -- and I'm using income excluding capital gains for the moment -- have received 36% of the aggregate income gains from 2000 to 2006.
The next 4% of income recipients have received 17% of the income gains between 2000 and 2006.
The next 5% of income recipients have received 14% of the income gains between 2000 and 2006
The bottom 90% of income recipients have received 33.1% of the income gains between 2000 and 2006.
For comparison: in 2000, the top 1% had 16.5% of the income excluding capital gains; the next 9% had 26.6%, and the bottom 90% had 57.8% of the income; by 2006, the corresponding figures are 18.2%, 27.0% and 54.7%. [Source, my calculations from Tables A1 and A0 of Piketty and Saez's spreadsheet through 2006.]
Is this the non-negotiable American way of life to which the Vice-President was referring? I suspect that, at bottom, it is.
So why should we change anything, if the machine is working so well for those at the top?
So what if this machine uses excessive amounts of the world's natural resources?
So what if it produces more than our legitimate use of the world's carrying capacity for dealing with pollution of air and water?
So what if, in order for us to be rich, others must be poor -- very poor?
So what if, in order to us to continue to drive our cars everywhere we need or want to go, we need to import oil drilled in other parts of the world?
So what if, in order for our powerful to maintain their privileges, we impinge on the rights of our own people, the rights of our contemporaries in other countries, and on the rights of future generations both here and abroad?
Ah - I've not answered the initial question. I'll come back to that in a future post, I guess -- because I think there are some very obvious answers to that question -- obvious to Georgists, anyway -- whose widespread understanding could make a big difference.
America in the world, American exceptionalism, American way of life, Cheney, income concentration, income distribution, it works for me, poverty machine, privilege, wealth concentration, wealth distribution
transit systems across the country, BART has experienced record
ridership this year. In 2007, Americans took 10.3 billion trips on
public transportation, the highest number since the Model T and its
progeny took over the nation.
Back in 1926, Americans each year took 147 transit rides per capita.
By 1950, Americans took just 113 transit rides per capita, and by 1956 that number had plummeted to just 66.
By 2006, Americans took just 33 transit trips a year per capita. In the
decades since World War II, it has been only in the dense financial
centers, like New York, Chicago and San Francisco, where transit has
been able to stubbornly resist the rise of the car, remaining a major
way for many residents to get around.
In 1960, some 12 percent of all U.S.
workers used transit to get to work. By 2000, that number was down to
4.7 percent, and in the past couple of years it has just barely ticked
up to 4.9 percent.
Since the early '80s, 15 major American cities, including San Diego, Portland, Ore., Denver, Houston, St. Louis, Salt Lake City and Los Angeles, have built new light-rail
systems from the ground up. Dozens of other cities are considering proposals for similar systems, or have them in development, such as Phoenix and Seattle.
So how do we go about making our cities and towns mass-transit-friendly? Seems to me that measures that lead to increased density will help support mass transit ... and that mass transit will support increased population density.
The best measure I know is shifting taxes onto land value. Sites well-served by infrastructure (e.g., roads, bridges, highways, airports, public transportation systems, ports, city water and sewer, stormwater runoff and, where needed, levees or hurricane protection, etc.) -- and services(e.g., schools, emergency response for small- and large-scale emergencies, public health, courts, etc.) -- and in places made desirable by nature(e.g., good views, waterfront, access to recreation, an appealing climate, a reliable supply of clean water, etc.) and good laws(e.g., limiting pollution, unpleasant smells, noise, etc.), efficient and uncorrupted government, and a healthy economy (with smart incentives and few disincentives to productivity, good infrastructure, logical and efficient services provided by the government, particularly in natural monopolies) have tremendous value. For a good example of this, see this post.
When we tax land value lightly, those who own choice sites can choose whether to sit and wait -- without lifting a finger -- for the rise in land value they can reasonably expect to occur, or put the land to good use now. Putting the land to good use now creates jobs, housing, offices, retail spaces, density. Sitting and waiting produces nothing on that site, and leads to sprawl at the fringes. Should our landholders have that choice, or is putting such sites to something approaching their highest and best use sufficiently important to the community as a whole that we ought to have incentives to good land use? I'd say that reducing and reversing sprawl is sufficiently important that we ought to be taxing land value heavily.
And there are many other good reasons to do so beyond this one.
The fundamental starting point for democratic government began with taxation, said David Cay Johnston, a Pulitzer Prize-winning author and former New York Times investigative journalist, during a speech to McCombs accounting students Sept. 24.
Johnston, who came to UT as part of the Lyceum Speaker Series, told students that the ideas about taxation and society that have prevailed since Ronald Reagan’s time favor a system in which money is systematically funneled from the poor to benefit the rich.
“People who think that taxes are a cost will do virtually anything to eliminate that cost,” Johnson said. “Taxes are not a cost. Taxes are a moral obligation.”
The ancient Athenians, he said, developed democracy by instilling a guiding moral principle in tax laws: that the greater the wealth one has built up, the greater their moral obligation to helping society continue.
As readers of this blog know, I am a great admirer of David Cay Johnston. I generally think he is on the right track, and/but (shifting metaphors and transportation systems) think he has some blinders on.
In the quote in the preceding paragraph, I think he is bringing up a vitally important matter, but he hasn't followed it to its logical root, and is thereby missing perhaps the most vital aspect of the subject.
A few days ago I received a mailing from a friend, incorporating (with permission) something I wrote a while ago, and had mostly forgotten about. I think it is worth sharing here; I'll expand on bits and pieces of it, as the spirit moves me.
It has been said that a budget is a moral document. Usually that is construed to refer to the spending side of the budget. But it is equally and importantly true of the revenue side. When we tax the wrong things, we get undesirable effects. When we fail to tax that which we should tax, we get undesirable effects as well. [I might add that an individual's revenue which comes from stealing from others is also a very poor idea -- even when the theft is legal! Chattel slavery certainly fit in this category, as did the industrial slavery Douglas Blackmon described in his recent book.]
With other Georgists, I seek a shift in how we tax ourselves which will produce a better world for all of us. Land value taxation will have important effects in many areas which concern most Americans:
slowing, stopping and reversing urban sprawl
improve wages, without raising the cost of living
spur job creation -- here
reduce long commutes
excessive energy usage
reducing greenhouse gases
The term LAND includes not just the value of urban land, which is huge (and currently underreported and thus ignored, despite being the underlying source of huge fortunes), but also the rest of the natural creation ...
broadcast spectrum -- those airwaves which we all say (complete the sentence) ... belong to the American people, but which have been sold to corporations
water rights (ditto)
natural resources, particularly the non-renewables
congestion in the skies and at location3 airports
and many others -- see Mason Gaffney's paper, The Hidden Taxable Capacity of Land: Enough and to Spare,here
Land Value Taxation (LVT) can solve a lot of problems and set the stage for solving many others. Most of us believe that without this taxation reform, none of these problems are solvable; all we can do is place small bandages on them and spend a lot of money on programs which help relatively few victims.