This was from my drafts file, late September ... so parts of it are a bit dated ... but I thought it worth putting online nonetheless.
With all the upheaval on "Wall Street," there has been a lot of talk about looking out for "Main Street." But let's look closely at what we mean by Main Street.
It conjures up images of older towns, populated by small shops and larger ones, walkable towns. Merchants who know their customers, who live locally and employ local people. Doctors, dentists, lawyers, accountants, all self-employed and serving and knowing their community. Perhaps of dollars being circulated locally. Perhaps of a community with little poverty, with opportunity for all; a place where children who grow up there both want to stay and can afford to live . I think of a sign I saw over the summer suggesting that shopping locally kept one's dollars recirculating locally.
Well, Main Street tends to be a bit more complex than that. Often the reality is that Main Street is composed of two different classes: the landlord class and the tenant class. Businesses whose business is landlording do very well. Businesses which own their own building and the land under it do very well. Those who are tenants to others are in a constant struggle, a constant race, a constant balancing act.
In many parts of the retail business, it is well known that the Friday after Thanksgiving is known as "Black Friday" -- that is, the day on which retailers move out of red ink (indicating unprofitability) and into black ink (indicating profitability). They may have employed a fairly skeleton staff for 11 months, and they've had rent to pay, and they've managed their inventory carefully. The Christmas buying season is when they make their profits. People buying for their family and friends, and, increasingly, for themselves, in the weeks before Christmas, represent a disproportionate share of their annual sales.
I am led to wonder what the 2008 Christmas shopping season is going to look like, particularly in the northeast, where a large proportion of homes are heated with oil, which has gone from, say, $2 per gallon to $4, and is normally bought in 300 gallon or larger tank loads. Depending on the size, age and heat leakiness of the house; the efficiency of the burner; outside temperatures; whether people are home by day; and the occupants' tolerance for cold (among other factors), a home might use a tankload every few weeks or a month. We talk alot about the gas mileage our cars get, but I've heard little about houses' gallons per day.
By Thanksgiving, most northeasterners will have paid for at least one delivery of heating oil, and will be facing concerns about how they will cover the much higher costs this winter will bring.
But the landlord expects to have his rent check, and I anticipate that tenant businesses that are dependent on discretionary spending are going to be hurting this Christmas. Their landlords, however, will have made out just fine all year. And the town charges those landlords little for their ownership of choice downtown sites. Most of the rent the tenant pays is for location, not the building itself, and the landlord gets to keep the lion's share of that payment.
The part of Main Street that is owner-occupied will fare somewhat better, particularly if the land has been in the family for years or decades, and they have not borrowed against their land value over the years. The town charges them relatively little for their occupancy of choice downtown sites.
How do we improve this scenario -- that is, how do we spread the rewards of work and of risk-taking more evenly among those who work and those who take risks, while continuing to finance our very necessary and very wise common spending on schools, infrastructure, services, courts, etc.? How do we provide good incentives which align with our shared goals?
Some Massachusetts towns have done to their own Main Street business community something I think is a miserable mistake: they charge a higher property tax to commercial property owners, and then reduce the millage rate on residential property. The commercial property owner pays perhaps 15% more than he would otherwise have paid, and it lowers the residential millage rate by perhaps 5%. They call this "split rate*."
Massachusetts "split rate" taxation will tend to drive commercial property owners away, causing us to drive further to the services we need and want. It drives up the operating costs of doing business. It drives up the fuel we use, the time we spend on the road, congestion of our highways. It penalizes those who have developed their property to its highest and best use by putting a fine building on it; and rewards those who tear down buildings which could be serving human needs for housing or places to work; and rewards poor maintenance. If you as an entrepreneur have a choice about which side of a town line you'll locate on, you'll likely choose to be outside such a town, just as Philadelphia area employers frequently choose to locate just beyond City Line because the city imposes a 4% wage tax.
Ah, I've wandered from my original point, which is that when we nostalgicly talk about Main Street, we are really talking about two very different groups, whose interests and incentives are very different from each other. We're talking about landlords -- often absentee -- whose revenue derives primarily from collecting land value rent from their tenants, and tenant businesses who must pay rent to their landlord which is mostly a payment for location -- and then must pay taxes on their profits, should there be any, and are faced with customers who may be taxed on the goods and even services they purchase. We need to differentiate between the two, and provide good incentives to both. If we get the incentives right, we can motivate the landlord sector to redevelop their choice sites to serve more human needs, and provide venues for all the tenant businesses -- the real Main Street folks who create the jobs and provide the goods and services -- to work their business plans without having to first pay a large toll to their landlord and, if they succeed against the odds we create via our poorly chosen taxes, pay again in the form of income taxes. In any case, let's turn off the wealth machine we've created for our landlord class. They don't create jobs, and we forget that at our peril.
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