A friend of mine named Wendell Fitzgerald posted a wonderful comment under that title to an OpEdNews article at http://www.opednews.com/articles/California-s-Legislators-a-by-Sandy-Sand-081228-553.html entitled "California's Legislators and Voters are Among the Dumbest in the Land." With his permission, I am posting it in its entirety. (The bolding is mine.)
The most truly stupid thing California voters did a long time ago which
is slowly killing the State and underlies everything Sandy is saying is
voting for Proposition 13 back in 1978. The only proper source of
revenue to pay for local and state services (physical infrastructure in
particular) is to assess against the economic value that those
expenditures engender. All public expenditure and most obviously
in the case of expenditure for physical infrastructure results in
increasing land values. They do not increase the value of improvements
but land value only. All economists agree.
The appropriate source of revenue to pay for public services, therefore, is to assess against the privately held values public expenditures produce and increase. That value is land value. The property tax is the only tax that directly taxes land value. In that regard, the property tax merely takes back for community use to pay for community provided services the value the community gives to land. This is the epitome of economic justice. Unfortunately the property tax is deeply flawed in that it also taxes the value of improvements the value of which is not increased by public services but compared to every other tax that by definition has to fall on labor and capital, the property tax even as flawed as it was/is contains the only just and economically neutral form of taxation there is. The tax on community created land value.
The appropriate source of revenue to pay for public services, therefore, is to assess against the privately held values public expenditures produce and increase. That value is land value. The property tax is the only tax that directly taxes land value. In that regard, the property tax merely takes back for community use to pay for community provided services the value the community gives to land. This is the epitome of economic justice. Unfortunately the property tax is deeply flawed in that it also taxes the value of improvements the value of which is not increased by public services but compared to every other tax that by definition has to fall on labor and capital, the property tax even as flawed as it was/is contains the only just and economically neutral form of taxation there is. The tax on community created land value.
When the good people of California voted to cap the property tax back in 1978, they started a process that was guaranteed to eat the economic heart out of the state first by encouraging real estate speculation, i.e. land speculation, since the holding cost of real estate was significantly reduced and second by forcing all other taxation to fall on earned incomes from labor and real capital investment. Of course it was inevitable that there would be a revolt of taxpayers bringing about a deadlock in government budgetary and tax processes.
The two sides are now in total confrontational deadlock. The folks on the right now take the position that all taxation and all government is bad and is to be opposed. They are absolutely correct in regard to taxation of labor and capital but they are absolutely dead wrong when it comes to taxation of land value. You have to understand that private ownership of community created land value is a total free gift and free lunch from the community that benefits all land owners and is totally at the expense of all non-landowners, labor and capital. Landowners who also receive income from labor and real capital investment would prefer to have their labor and capital taxed as long as it protected the free lunch of their unearned land values. What else do you think the run up of real estate/home values was all about? It was all about cashing in on the speculative increase of land values and now that bubble has burst once again and it has triggered the far greater collapse of the entire financial house of cards that used real estate/land speculation as its foundation Now that is what was really stupid.
What the good folks on the right do not understand is that failure of government to continue spending on public services and infrastructure in particular will inevitably result in destroying the value of their land. They will have fought so hard to protect the free lunch that they will have destroyed its source. This means that even the recipients of the free lunch do not truly understand what they have and where it comes from.
On the other hand the folks on the left have no clue about this either since they truly really never did and never will, it seems, understand the most simple principles of economics. The left does not understand that it has completely ignored and left on the table the most powerful argument for economic justice there is. They have utterly failed to understand that community created land value belongs 100% to the community and that there is no valid argument that can be made against the idea. On the other hand they do not acknowledge the truth of the right's argument that taxes on labor and capital are destructive because they destroy incentives and skew economic decision making. The most powerful thing the left could have ever done was to agree with the right on most of their rant against taxes on labor and capital but ferociously insist on very heavy taxation of community created land value.
My guess is that the left has failed to do this partly out of ignorance but also partly out of desire to cash in on community created land values themselves. Do you know any lefties who got burned in the housing bubble? I sure do. With the collapse of the speculative value of real estate which is wholly the collapse of the speculative value of land, perhaps the left will realize the opportunity they now have to make the most powerful argument regarding taxation there is.
I'm not holding my breath since most folks on the left seem to want government to shore up the real estate market. The ostensible purpose is to help homeowners stay in their homes but the underlying agenda is to stop the further deterioration of land values so that the speculation in unearned land values can begin all over again. Is it not so? Is anyone prepared to give up profiting or the hope of profiting from speculation in values they do not create?
The solution would be to slowly return to the property tax by first changing it to a land value tax only by increasing the tax on land values and reducing it on improvements. (Most homeowners pay less under this scheme because they no longer subsidize land speculators and slum lords.) The the land value tax could be increased to take back more and more community created land value while reducing other taxes that fall on labor and capital. My preference would be to eliminate the state income tax on wages from the bottom up and then to eliminate the foul regressive stench of the sales tax. (Sorry I got carried away there.)
This is the position of the radical center. Continue to push incomplete economic arguments from left and right at your peril.
Enough said. Good luck California.
by Wendell Fitzgerald on Monday, December 29, 2008 at 1:23:30 PM
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