LVTFan's Blog

new Lincoln Institute Study -- Property Tax Assessment Limits: Lessons from 30 Years of Experience

press release: http://www.prweb.com/releases/property_tax/assessment_limits/prweb1130504.htm
The Lincoln Institute of Land Policy in Cambridge, MA, published recently a new study entitled "Property Tax Assessment Limits: Lessons from Thirty Years of Experience."  In 44 pages, it lays out rather well the problems with California's Proposition 13 and Florida's "Save Our Homes" assessment caps, which have led to, among other things, high land and housing prices and high foreclosure rates -- the boom-bust cycle that hurts most of us and helps only the land speculators.

It doesn't speak particularly to the injustices involved, or to the virtues of a portion of the property tax -- the part that falls on land value  -- for creating a vibrant economy and a just society, which are suppressed when assessments are not up to date and consistent with market valuations, for all. This is an important omission.

Nor does it point out that utilizing the property tax allows us to avoid wage and sales taxes which deaden the economy.
It does, however, suggest some alternative forms of property tax relief -- homestead exemptions, classified tax rates, circuit breakers, and tax deferral programs -- though to my mind, it does not weigh in heavily enough in favor of the one I think it far superior to the others (the option to defer some portion of the property tax, with interest, as a lien against the property).  [For more about that, see Bill Batt's article, Property         Tax Relief Measures: Answers to the "Poor Widow " Argument -- also available in PDF here.]

Pragmatic Politics: Proposition 13

Link: Pragmatic Politics. A short excerpt:

"The LA Times article posited Proposition 13 as a culprit in California's current mess. The PC isn't so sure about that. The Times pointed out that some Californians have some of the lowest property taxes in the country. Well, maybe that is true. But, some don't. Anyone that bought in the last 10 years does not have cheap property taxes because house prices were outrageously high. A heck of a lot of people have bought homes in California in the last 10 years. Since Prop. 13 passed in the 1970s (we think), property tax revenues have gone up over 5-fold. Also, California has a huge sales tax (7.75%) rate, high income taxes (but that varies up and down with the economy) and voters keep passing big bond measures for everything from badly needed infrastructure projects the legislators are incapable of funding on their own to stem cell research (mostly a sad waste of money).

For crying out loud, how freaking much money does the state need? The PC does not want to be cheap, but we suspect that there is tons of money that goes into rat holes the public knows nothing about. Those rat holes probably give back not much to the state, especially if that spending is payback for "campaign contributions". After all, if the legislators can gerrymander their districts for their own personal benefit, why can't they waste tons of money for exactly the same reason?"

I have a number of thoughts about this.  First of all, there is a fair amount of expense involved in collecting wage taxes and sales taxes, over and above the excess burden and deadweight loss they impose on our economy.

Low Rent, East Side Location - See Landlord, if You’re Famous

Link: Low Rent, East Side Location - See Landlord, if You’re Famous

A fascinating article which demonstrates how powerful the urban landed gentry are.  They can pick and choose their tenants, offering particularly well-connected people well-located luxury housing at a discount.

Which tenant is going to say no, on anything that matters to such a benefactor?   Moving is so inconvenient, and finding a similar location, particularly subsidized, difficult.

A rent-stabilized apartment in New York is a precious find. Which could explain the indignation that greeted the disclosure that Representative Charles B. Rangel was occupying four of them in the luxurious Lenox Terrace towers in Harlem, where Gov. David A. Paterson also has one.

Throughout the city, the well-connected (or just plain lucky) have been able to snare such prizes and retain them over the years.

But few rental buildings in the city have been as hospitable to public officials, past and present, as the Rudin Management Company’s high rise at 215 East 68th Street, where a shouted, “Good morning, your honor!” could turn every head in the lobby.

Technically Speaking, Market Analysis and Theory: Saturday AM Coffee: A Plethora of Choices, for Some

Link: Technically Speaking, Market Analysis and Theory: Saturday AM Coffee: A Plethora of Choices, for Some.

What the Federal Reserve CLEARLY doesn't understand is the bifurcation in the economy between the fewer doing quite well (and screaming the loudest for relief) and the many in the Stealth Depression among the least fortunate among us. When landed gentry whisper in your ear, you respond differently than whether you listen to the wretched misery of the silent.

"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"

<snip> 

As a physician, seeing 20-30 patients and their families daily, I see a sharp rise in anxiety, depression, frustration, and health crises directly related to the struggles experienced by 'ordinary' Americans. There is no hedonic adjustment for their pain, only pain. The Bernankes, Sterns, and Gramms of the world don't see this in their bar graphs of employment, core inflation, and mortgage applications. Those who have already reached the top of the mountain can easily overlook those who either fell off, or never got a chance to climb.

Transfers of Wealth Overseas

What are the means by which dollars produced in America leave the US and go to other countries?  I can list a bunch of them -- I don't think my list is exhaustive, and would welcome your additions to it.

1. We buy foreign-made goods -- e.g., Wal-mart goods made elsewhere
2. We buy foreign-extracted natural resources -- e.g., oil
3. Foreign aid
4. War
5. Remittances by foreign-born workers to their families overseas
6. Interest on loans made by foreign lenders
7. Return on capital to foreign investors in US business
8. Rent paid to foreign owners of property in the US -- both on land itself (economic rent) and on buildings (more properly called interest)
9. Profits

Remembering Marjorie Carter

Marjorie was my paternal grandmother, and she died 45 years ago today, too young, at 62.   She wrote light fiction, and was published in a number of popular magazines of the 40s and 50s: Saturday Evening Post, Colliers, LHJ; some of her stories were translated into many languages and published overseas as well..  But one of her first published efforts was a short piece called "My Introduction to Henry George," published in   The Freeman in 1941.  (On the preceding page was an LTE from a student named Mason Gaffney.)    I'm happy to share this piece with you!

"The Many suffer ...

The many suffer because they keep alive a Social and Industrial Game that dooms the many to Failure and want."

That is the full text of a postcard available on ebay today. It appears to be #6 of a series. It was published by "Luke North," who also wrote a book of poetry called "Songs of the Great Adventure."  It is available at wealthandwant.com, linked from the front page.

a few selections follow ...

Mandela's B-Day message: Rich should help poor

Link: Mandela's B-Day message: Rich should help poor

"There are many people in South Africa who are rich and who can share those riches with those not so fortunate who have not been able to conquer poverty," Mandela said.

I hate to disagree with Nelson Mandela, but I'm going to.  The rich should not 'help' the poor.  The rich should seek justice for all, which would help the poor a great deal.  Charity is not a substitute for justice.  The rich should not be asked to share what they have created, themselves.  Rather, they should be "relieved" of that which they have stolen from the commons and that which they have stolen from others by owning their labor and by owning the land on which we all must rely.

Fannie & Freddie: Privatization of Gain, Socialization of Loss: Who Benefits?

Who benefits from the ways we protect Fannie and Freddie's shareholders?  The Wealth Concentration Tables on wealthandwant.com wil give you a pretty good notion.  Unless, of course, you think for some reason that Fannie and Freddie's shares are held strictly by poor widows and orphans in the bottom 90% of the wealth spectrum, different from other equity holdings. [Cut to the chase: the bottom 50% of us hold 2% of the value.  The next 40% of us hold 26% of the value.  The top 10% hold the remaining 72%]

Consider also the advice that a prudent investor should not be concentrated in a single stock or sector, particularly if one is employed in that sector, as the employees of Enron learned very publicly not all that many years ago.

So whose portfolios are we protecting when we give gifts from the commons to the shareholders of Fannie and Freddie?  The poor widow whose advisor suggested she invest in those two stocks?   Right.

Cindy McCain's San Diego condo (the oldest of their 3)

The candidate's wife was in the news recently because there were unpaid property taxes on a condominium in San Diego, one of 3 she owns there. (Turns out that the bills had gone to the wrong address for 4+ years; they have since been paid in full.)   The story is relevant here only because it highlights one of the perverse aspects of California's Proposition 13.

Her late parents bought the new 1429 sq ft 2BR oceanfront condominium 36 years ago in 1972. In 1978, Proposition 13 rolled back the assessed valuation to its 1976 level, and since then, has capped the annual increase  in assessments at 2% per year (occasionally a bit less, when inflation was very low).  Its 2008 assessed value is $140,855.  That suggests that its 1978 valuation was about $71,000.

At Realestate.com, I selected La Jolla, condominium, 2+ BR,  2b, <1500 sq ft, and came up with 68 properties, ranging in price from $2,895,000 to a low of $319,900; the lower-priced ones were clearly a distance from the ocean.

WealthandWant.com: The Wealth Concentration Tables

Link: WealthandWant.com: Wealth Tables 50-40-5-4-1.

I took the data provided in the Federal Reserve Board's triennial Survey of Consumer Finances and reported in  Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004, Tables 10 and 11, and massaged the data in some ways that I don't think anyone else has.  I found some of the results exciting and interesting, and think others might too.   My results show -- not surprisingly, but very dramatically -- that it is not so much that poorer people have fewer kinds of assets, but that even those who possess the assets have far less each, on average, than do the top 1%ers, or even the next 9%ers.

We All Pay for Leona Helmsley’s Bequest to Dogs - NYT

Link: Op-Ed Contributor - We All Pay for Leona Helmsley’s Bequest to Dogs - Op-Ed - NYTimes.com.  The article begins,

THE latest news from the Palace, that Leona Helmsley left instructions that her charitable bequest of as much as $8 billion be used for the care and welfare of dogs, rubs our noses in the tax deduction for charitable gifts and its common vehicle, the perpetual private foundation. Together these provide a mechanism by which American taxpayers subsidize the whims of the rich and fulfill their fantasies of immortality.

Update on the Feoffees' tenants in Ipswich, Massachusetts

One of the early posts on this blog described (at length!) a peninsula community off Ipswich, Massachusetts, about an hour from Boston by train, where under the terms of a trust dating back to 1660, the neighborhood, known as Little Neck, belonged to the Feoffees (trustees) of the public schools of the town, and the grantor's trust told them to obtain the full market value for the benefit of the public schools.  For a long time, this was not done, and recently the Feoffees have moved toward meeting that requirement.  The tenants aren't happy.

A recent article in the Boston Globe entitled "Threatened Idylls" describes a home for sale for $290,000 which they say would have sold for a great deal more when land rents were lower.

Although waterfront properties often retain their value, even in a soft market, the seaside cottages on Little Neck have seen a significant decline in value since 2005. Properties that would have commanded a sales price in the low $600,000 range just a couple of years ago are now being listed in the mid-$400,000s, Gilbert said. Homeowners blame the dispute with the feoffees for turning buyers sour.

We are so used to thinking of land and buildings together.  But the cottage seller is not selling the land on which the cottage sits!  Rather, they are selling the cottage itself -- which may be 60 or 90 or more years old, and has been subject to windy saltwater conditions -- and the right to pay the rent on the land.  And now the land owners, the Feoffees, might actually have the audacity to demand fair market rent for the land!

The cottages should change hands at their depreciated value, if the Feoffees are doing what the trust requires of them.  Here are the listings, gleaned from realtor.com (zipcode 01938), looking just at those whose lot size is roughly 0.07 acres.  (Only a few of the ads mention that they are seasonal; presumably if any of these came with year-round access, the ad would have prominently featured that!)

1. Seasonal (4/1 to 1/1) $290,000 - 3BR,1b - 1032 square feet, built 1930 -- so they're asking $281 per square foot!
2. Seasonal  $325,000 - 2BR, 1b - 800 sq ft, built 1910 - asking $406 psf
3. Seasonal  $339,900 - 2BR, 1b - 926 sq ft, built 1935 - asking $367 psf
4. Seasonal  $350,500 - 4BR, 1.5b - 1114 sq ft, built 1950 - asking $315 psf
5. Seasonal  $359,900 - 2BR, 1b - 782 sq ft, built 1865 - asking $460 psf
6. Seasonal  $369,000 - 2BR, 1.5b - 2012 sq ft, built 1930 - asking $183 psf
7. Seasonal  $443,900 - 2BR, 1b -  868 sf, built 1930 - asking $511 psf
8. Seasonal  $465,000 - 3BR, 1b - 1408 sq ft - built 1930 - asking $330 psf
9. Seasonal  $495,000 - 3BR, 1b - 1160 sq ft - built 1920 - asking $427 psf
10. Seasonal $625,000 - 3BR, 1b - 1318 sq ft - built 1930 - asking $474 psf
11. Seasonal $625,000 - 5BR, 1B - 1779 sq ft - built 1910 - asking $351 psf

Clearly, the sellers' asking prices ask the buyer to assume that the Feoffees won't soon require payment of land's full value in land rent.  These homes, between 58 and 140 years old, would probably be worth $50 psf were they inland on rented land (and probably be on larger lots!) -- $40,000 to $90,000 each.

The rest is locational value, and the Feoffees ought to be collecting that, per the terms of their trust.  Land value is community value.

This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

The Housing Crash and the Retirement Prospects of Late Baby Boomers

The Center for Economic and Policy Research published a study in June entitled The Housing Crash and the Retirement Prospects of Late Baby Boomers.  It is from the data source as the wealth distribution (wealth concentration) data on the wealthandwant.com website (the FRB's Survey of Consumer Finance), but limits itself to a single age cohort: those who will in 2009 be ages 45 to 54. 

It starts with the net worth, house values and mortgage balance data for that age cohort from 2004, and then considers 3 scenarios:

Tax Analysts column: The Price of Civilization

Link: Tax Analysts: The Price of Civilization.

Bravo! Both to David Cay Johnston and to Tax Analysts, for making him a regular columnist there.  I hope that DCJ's work will remain available to us ordinary mortals who aren't subscribers to Tax Notes.  Yes, getting the conversations going among legislative aides and academics is important -- but so is reaching the public, and I hope TA will choose to do both, with this particular column!

The third paragraph says

Our national debate on tax, such as it is, suffers from "experts" who typically know little to nothing of the history, practical rationale, moral basis, or economic benefits of tax. Their expertise is in delivering memorized talking points, not imparting understanding.

Leona Helmsley’s Fortune May Go to Benefit Dogs

Link: Leona Helmsley’s Fortune May Go to Benefit Dogs

The living and the dead, the human and the canine.

Leona Helmsley and her husband Harry individually and together accumulated billions of dollars worth of New York City real estate.  Who is entitled to that fortune?

Bill Gates: How Can He Best Use His Wealth and Influence to Help the World?

Bill Gates has moved on to his second career, using a large share of his -- and Warren Buffett's -- accumulated funds -- $30 to $40 billion -- to make a difference in the world.  I've got some thoughts about the options he has chosen, and some alternatives. 

He seeks to cure malaria.  A worthy goal. Nothing wrong with that. Success would remove a cause of human suffering.  But we ought to be conscious of the side effects of such measures.   And if the goal is to reduce human suffering, then something more needs to be done, above and beyond the things Bill Gates proposes, the things the Millenium Development Goals propose, the things Jeffrey Sachs proposes. 

Do you own an oil company?

That's the tag line of a commercial appearing on news programs. I'm sure I'm not the first blogger to be troubled by the attempt to suggest that ownership of oil companies is broadly middle class.

The two ads I've seen are titled "Who really pays when Congress taxes oil companies?" and "Do you own an oil company?"