LVTFan's Blog

Union College Admits That It’s in Schenectady, NY

Union College Admits That It’s in Schenectady, N.Y. - NYTimes.com.

My brother (an alum) called this one to my attention.  My husband and I are alumni, too, and some years ago, when it came time to look at colleges, our son refused to seriously consider Union because he had seen Schenectady on various visits to campus over the years, and simply couldn't imagine living there for four years.  He made a great choice for a college, but I've often mulled over what the article is discussing: that the problems of Schenectady, like much of upstate New York, make it an unhappy place, one where many people would not choose to live, given other options.  Its economy is hurting -- and for reasons that can be easily corrected.

Union always had a well-regarded economics department, and being as close to the state capital at Albany, some students did internships in various legislature offices.

So why on earth haven't Union's Economics and Political Science departments applied their sciences -- and talents -- to the problems of Schenectady, and proposed solutions? 

Part of the answer might be that for several generations, neither of these sciences have put much thought into the problem that underlies Schenectady's troubles.  It hasn't been fashionable to talk about, and many haven't even had the vocabulary.  Most of today's economics professors learned their economics at the feet of neoclassical economists.  They have a lot to fit into a trimester, and they're not likely to teach that which their own instructors chose to omit.  But they're missing something important and relevant.  The classical economists had a lot to tell us which points to the root of some of today's most serious problems.

Or perhaps those seeking a better future for Schenectady might turn to the History department, or to American Studies.  Students of the last half of the 19th century might be able to tell them about an American philosopher and economist named Henry George (b. 1839, Philadelphia; d. 1897, NYC), who was the best known (due in part to his bestselling book on political economy, Progress and Poverty, which was familiar to anyone who read at all during the last 20 years of that century; it sold about 6 million copies and was widely serialized and translated) of a long continuum of people who called attention to the importance of land and natural resources in our economy, and to the distortions that result when we permit the privatization of their economic value -- or about the movement which followed in the early years of the 20th century.  George proposed a simple and just remedy, and I'll bet that not 10 of this year's Union graduates have even heard of it.  (That doesn't set Union apart from many other highly regarded colleges, but it is clearly a shame: that these students have spent 3 or 4 years in Schenectady, and not gotten close to some answers about why there is such poverty and underdevelopment in the state of New York, from which many of Union's students come.  They come from much richer parts, in general.)

The small cities of upstate New York, like many other places in America, are suffering from the use of the wrong taxes.  Schenectady is perhaps an extreme example.  When we tax both land value and buildings at the same millage rate, we discourage the sort of development which we claim to want.  The answer, of course, is to reduce or even eliminate the tax which falls on buildings, and increase the millage rate on land value. 

Union's economics and political science departments owe it to their hometown to take on this topic.  First, the faculty must educate themselves.  And then they must involve their students, particularly those who come from New York State.  They can become a force for good, a force for reform of some miserable policies, and for a shift to superior ones.

They may find themselves coming up against the "real estate interests" -- including alumni, perhaps -- who think that this might not be in their own best interests (and therefore discourage the exploration).  (Governor Spitzer, the son of a real estate magnate, would not have been enthusiastic about this, for instance.  He convened a panel to try to offer "Property Tax Relief" as an answer to some question -- but it was probably not primarily for homeowners.  Remember Leona's wisdom about taxes.)  Will Union's best and brightest be able to push through the interested parties' incentives, or will they be derailed by pressure not to study this matter? They have tenure, many of them, and most live in or close to Schenectady.  

The political scientists might start with a couple of Google books, such as "Natural Taxation" (by one of the founding partners of Shearman & Sterling) or "The ABC of Taxation."  They're available via Google books, and will soon be online in other forms.  (Stay tuned here for updates.)

The economists might start with "The Principles of Natural Taxation" (also on Google books) or Progress & Poverty (unabridged, or in a modern abridgment), or an essay called "That We All Might Be Rich".

The History department might start with some of Henry George's speeches, such as "The Crime of Poverty" or "Thou Shalt Not Steal," or with Winston Churchill's 1909 Speeches called The People's Land.

The American studies department might start with a book of essays entitled "Social Problems" or with Mark Twain's essay, Archimedes, or with Bengough's Primer.

The English department might appreciate some poetry by Luke North, inspired by this same movement.

And all might appreciate the writings of Bill Batt, an Albany-based thinker on a lot of important issues which could be of great help to Schenectady.

And if any of them think this might simply be a quaint agrarian idea, I encourage them to read this page, and consider which of these issues don't affect Schenectady or their own futures.

People as diverse as Henry Ford, Theodore Roosevelt, Aldous Huxley, Clarence Darrow, Bernard Shaw, and Leo Tolstoy have embraced these ideas, as have a wide range of wise people from earlier centuries, and contemporaries as diverse as Bill Buckley and Michael Kinsley.  They are a fine example of thinking globally and acting locally, and represent a "third way."

Will Union College act -- and in the process, teach its students some important truths -- or simply nibble at the leaves of Schenectady's problems?  Go to the root!

Post Script: Union's faculty, and others who care about Schenectady, have an opportunity to get to know these ideas this summer.  There will be a conference in Albany, July 12-16, of the umbrella group for North American Georgists.   Some of the sessions will be of great interest to those who care about Schenectady, but I mention it here primarily because it will be an opportunity to interact with people who know George's ideas well and are persuaded that they can make an important difference in the world.  (This post didn't start out to be a promotion for the conference, but I was glad to find that the conference schedule is now available online.  It ends: "The Law of Rent never changes, but our schedule may - without notice.")

Is "chasing the bad guys" the highest good?

I heard part of a radio interview with Harry Markopolos today.  He's the fellow who saw through Bernard Madoff's "investment" scheme, and made every effort to get the SEC to pursue it.   I have tremendous respect for Markopolos, and hope he will continue to use his talents for public good.

He was talking about "chasing the bad guys," and it got me thinking that while "chasing the bad guys" -- the ones who abuse the rules, who flout them completely, who betray trust others put in them -- is important, there is something else that also needs to occupy our attention.

We have a structure, which few of us are conscious of, which funnels our nation's wealth into the pockets of a particular class of us, and until we -- a large proportion of ordinary people -- become conscious of the particulars of that structure, we are simply putting our attention in the wrong place. 

The theft by Bernard Madoff from some of our wealthiest folks -- I'm guessing that few of his victims were below the top 5% of the net worth distribution, counting just the dollars they sent to Madoff and their other holdings, not the assumed increase in the Madoff "investments" -- may simply serve to divert our attention from noticing that major structural matter to chasing a bad guy.

I discovered an interesting book online this weekend.  Hardcopy sits in my library -- from my late grandparents' collection -- but I'd been put off by the title, and never bothered opening it.   The title is "The Story of My Dictatorship." It turns out to be funny and interesting -- a telling of a dream, a bit along the line of "A Connecticut Yankee in King Arthur's Courts." 

We need people who will play whistleblower on our system, our structure.  And we need to listen to them.

That $1 billion acre in Manhattan

Current rupee-dollar exchange rate.

About the possibility of selling PIA-owned Roosevelt Hotel in New York to pay for past losses, he said it is not the appropriate time to sell a billion-dollar property when real estate market is still recovering in US.

“Besides, what is the point in selling a business which earns PIA $7-8 million annually?”

So the Roosevelt Hotel, which occupies an acre near Grand Central Terminal in NYC, has a net income of $7 million or $8 million per year.

This suggests some questions one might ponder:

1. Should an acre in NYC worth a billion dollars be earning a mere $8 million?  Seems to me that this is a rather low return -- at $1 billion valuation, that's 0.8% per year.

2. If this property is worth $1 billion, the land rent, at 5% -- "20 years' purchase" -- is $50 million per year.   How much does the Roosevelt Hotel pay the City of New York in property taxes each year?

3. How much do the guests at the Roosevelt Hotel pay NYC and NYS in hotel occupancy taxes per year?

4. How much do the employees at the Roosevelt Hotel pay NYC in wage taxes per year?  Wouldn't it be better to collect this amount via taxes on land value?

5. How much do the employees at the Roosevelt Hotel pay NYC in sales taxes and property taxes per year?  Wouldn't it be better to collect this amount via taxes on land value?

6. When Pakistan International Airlines decides to sell this "taxpayer," for $1 billion, and that $1 billion, created not by PIA or the people of Pakistan, or the hotel management or the hotel employees, leaves this country, will that be a good thing, or something which should have been avoided?

7. Shouldn't the beneficiaries of NYC's land value be NYC, NYS and the American people, instead of a private entity of any kind -- be it PIA, an American REIT, an NYC-based corporation, a family-owned real estate dynasty, one or more American pension funds (corporate or public), a British church, a middle eastern sovereign fund, a mutual fund, or any other private entity?

That site is valuable not because of anything its current owner is doing or is not doing.  It is valuable because of the presence of millions of residents in the surrounding area, and of millions more who visit NYC on business and as tourists in the course of a year.  It is valuable because we-the-people have invested and will continue to invest in infrastructure and services which protect and serve these sites.  Why on earth does a private entity get to pocket what we create? 

It doesn't come out of thin air.  

For more background on this story, see some previous posts here:

• That block in Manhattan ...
• Hotel Roosevelt For Sale at $1 Billion
• Cashing in on urban land value ... who is entitled to it?

Paring the Deficit, by Selling Part of the Radio Spectrum

Economic View - Paring the Deficit, by Selling Part of the Radio Spectrum - NYTimes.com.

I'd missed the article when it was published a week ago, but an LTE brought it to my attention.  The author is Richard Thaler, a professor of economics and behavioral science at the newly re-named business school at the University of Chicago (forever to be recalled as GSB by some, despite stern orders in the alumni rag).

He proposes auctioning off "The Buried Treasure in Your TV Dial."  But he isn't suggesting leasing it for some finite period of time, with a new auction at the end of, say, 5 or 10 or 15 years, but selling it forever.   As one of the LTE's says,

Re “The Buried Treasure in Your TV Dial” (Economic View, Feb. 28), in which Richard H. Thaler cites an estimate that the government could reap $100 billion by auctioning the portion of the radio spectrum used for over-the-air television:

How long would such a sum last, however, in an era of military adventures and over 700 foreign military bases? What would be permanent is the loss of both choice and the free reception of radio and television programming. Ownership of electronic media, and access to the privatized airwaves, would be as concentrated as cable and satellite systems are today.

The column says that such an auction would have many national benefits. But virtually all them, like faster broadband connections for schools, could be obtained by federal policy, not a fire sale.

Those airwaves belong to the American people, and the American people ought to be collecting full rent on them -- year in, year out -- not giving away licenses and then permitting corporations to make a business in re-selling or leasing out what they choose not to use.

Here's Thaler's article.  I look forward to his next suggestions; he has the germ of a good idea, but gets a very important aspect of it wrong.  Don't sell our common asset to anyone.  AUCTION OFF LEASES.  Wait 5 years.  Repeat.

HERE’S a list of national domestic priorities, in no particular order: Stimulate the economy, improve health care, offer fast Internet connections to all of our schools, foster development of advanced technology. Oh, and let’s not forget, we’d better do something about the budget deficit.

Now, suppose that there were a way to deal effectively with all of those things at once, without hurting anyone. And suppose that it would make everyone’s smartphone work better, too. (I’ll explain that benefit shortly.)

I know that this sounds like the second coming of voodoo economics, but bear with me. This proposal involves no magical thinking, just good common sense: By simply reallocating the way we use the radio spectrum now devoted to over-the-air television broadcasting, we can create a bonanza for the government, stimulate the economy and advance all of the other goals listed above. Really.

The reason for this golden opportunity may be in your purse or pocket: that smartphone to which you could well be addicted. The iPhone, the BlackBerry and competing devices are already amazing technologies. But precisely because of the nifty features they offer, like the ability to text photos, stream video and provide GPS directions, the radio spectrum is looking as crowded as Times Square on New Year’s Eve. Demand for spectrum is growing rapidly — a trend that will surely continue.

The problem is that the usable radio spectrum is limited and used inefficiently. Think of it as a 100-lane highway with various lanes set aside for particular uses, including AM and FM radio, TV and wireless computer technology. The government — specifically, the Federal Communications Commission — is in charge of deciding which devices use which lanes.

Because we can’t create additional spectrum, we must make better use of the existing space. And the target that looks most promising in this regard is the spectrum used for over-the-air television broadcasts.

These frequencies are very attractive on technological grounds. People in the industry refer to them as “beachfront property” because these low-frequency radio waves have desirable properties: they travel long distances and permeate walls. We have already allocated parts of this spectrum for mobile wireless, and the F.C.C. recently auctioned other parts for $19 billion. That has left 49 channels for over-the-air television.

Why is the current use of this spectrum so inefficient? First, because of the need to prevent interference among stations, only 17 percent of it is actually allocated by the F.C.C. for full-power television stations. (The so-called white space among stations is used for some limited short-range applications like wireless microphones.)

Second, over-the-air broadcasts are becoming a nearly obsolete technology. Already, 91 percent of American households get their television via cable or satellite. So we are using all of this beachfront property to serve a small and shrinking segment of the population.

Suppose we put this spectrum up for sale. (The local stations do not “own” this spectrum. They have licenses granted by the Federal Communications Commission.) Although the details of how to conduct this auction are important, they don’t make compelling reading on a Sunday morning. Interested readers should examine a detailed proposal made to the F.C.C. by Thomas W. Hazlett, a professor at the George Mason University School of Law who was formerly the F.C.C.’s chief economist.

Professor Hazlett estimates that selling off this spectrum could raise at least $100 billion for the government and, more important, create roughly $1 trillion worth of value to users of the resulting services. Those services would include ultrahigh-speed wireless Internet access (including access for schools, of course) much improved cellphone coverage and fewer ugly cell towers. And they would include other new things we can’t imagine any more than we could have imagined an iPhone just 10 years ago.

But some compelling technology that could use these frequencies already exists, like wireless health monitoring — to check diabetics’ blood sugar regularly, for example — and remote robotic surgery that can give a patient in Idaho a treatment like that available in New York or Chicago.

Who would oppose this plan? Local broadcasters are likely to contend that they are providing a vital community service in return for free use of the spectrum that was put in their hands decades ago. Whether the local news or other programs are vital services is up for debate, but their value isn’t the issue, because they can be made available via cable, satellite and other technologies, including improved broadband.

Say there are 10 million households that still get their television over the air, including those that can’t afford cable or satellite and some that generally just don’t care for what’s on TV. (Yes, there are people who don’t like “American Idol.”) But about 99 percent of these households have cable running near their homes, and virtually all the others, in rural areas, could be reached by satellite services. The F.C.C. could require cable and satellite providers to offer a low-cost service that carries only local channels, and to give vouchers for connecting to that service to any households that haven’t subscribed to cable or satellite for, say, two years.

Professor Hazlett estimates that $300 per household should do it: that amounts to $3 billion at most. Compared with the gains from selling off the spectrum, it’s a drop in the bucket. Or, as an interim step, we could reduce the number of channels available in a community from 49 to, say, 5.

I KNOW that this proposal sounds too good to be true, but I think the opportunity is real. And unlike some gimmicks from state and local governments, like selling off proceeds from the state lottery to a private company, this doesn’t solve current problems simply by borrowing from future generations. Instead, by allowing scarce resources to be devoted to more productive uses, we can create real value for the economy.

Economists are fond of saying that there is no such thing as a free lunch. Here we have an idea that is even better than a free lunch: being paid to eat lunch. More paid-lunch ideas will be coming in future columns.

The classical economists might never have heard a radio or seen a television, but they'd immediately recognize broadcast spectrum as "land" -- a gift of nature, finite and scarce -- and would have regarded it as our common treasure.  Unfortunately, Professor Thaler is not a classical economist.  He is a neoclassical economist, and his training in economics probably glossed over the truths the classical economists saw.  And quite likely, that's how he teaches the subject, too.

We can concentrate more wealth in the hands of a few corporations, or we can collect the economic rent on this scarce and valuable resource.  (See also Alaska Permanent Fund, in the topic cloud at left.)

I hope we'll do the latter.

U.S. Plans New Measure for Poverty

U.S. Plans New Measure for Poverty - NYTimes.com.

About time!  The new measure (the old one will remain; this is supplemental) will take into account the local cost of living:

Federal officials describe the supplemental measure as experimental and a work in progress. It establishes a poverty threshold that depends on the cost of food, shelter, clothing and utilities “plus a little more” for “a population that is not poor but is somewhat below the median.”

The original measure figured costs for two adults and two children. The new one covers one adult and two children, a family structure more prevalent these days among lower-income households, and would be adjusted to reflect living costs in different metropolitan areas.

The threshold would be adjusted to calculate the value of in-kind benefits, like food stamps, and whether homeowners have a mortgage. Tax credits would be added to the total income and benefits; taxes, work expenses (including commuting and child care), and out-of-pocket medical costs would be deducted.

It sounds to me as if someone has been reading the Self-Sufficiency Standard Studies, which take into account local costs for rent, commuting, health care, child care, and a (usually) national figure for 100% home-cooked meals.

The new figures will not be published until Fall, 2011 (August is the time of year the annual poverty data currently is published).  I look forward to seeing the methodology, and how it differs from or matches the Self-Sufficiency Standard study assumptions, which are based on the Fair Market Rent for a suitably sized apartment in each county.  That's generally the 40th percentile of the local market (occasionally the 50th).  Will this new poverty "threshold" use the 40th, or something lower?   How will it be calculated?  Does HUD make available the, say, 20th percentile? 25th?  

There is a parallel study to the Self-Sufficiency Standard studies, which are generally oriented to working-age individuals and families, which relate to the cost of living for seniors.  I've read the one for Pennsylvania.  It works with both rented and owned housing, county by county, in that state, for a single senior and a married couple.

Under the new poverty measure, poverty rates will likely rise significantly in America's cities, particularly on the coasts.  (Look for the legislators from the heartland states to question the new measure: a lower share of poverty will be in their districts and states.)

My calculations, from the Overlooked and Undercounted studies, suggest that 35% to 45% of our children are in families with insufficient income to meet the family's most modestly defined needs.  (Click on the link for Self-Sufficiency Standard studies in the cloud at left, for more details.)

I expect that, when we see how many people simply have little discretionary income, it will become clearer to us what it will take to make our economy work better: insure that more people have spendable income.

Those who have spent some time exploring this blog will know that the ways I'd propose to achieve that are different from what is usually proposed.

America's millionaires

The term "millionaire" used to always be a reference to net worth.  Recently, we've started to see it used to refer to people with annual incomes of $1 million or more -- usually in articles suggesting that a significant and growing percentage of us fall into that category and isn't America wonderful?

Here is a bit of information which uses the traditional definition: people with net worth of more than $1 million.  It comes from a study entitled "Migration of Wealth in New Jersey and the Impact on Wealth and Philanthropy."  The data cited comes from the Federal Reserve Board's triennial Survey of Consumer Finances.

In 2007, according to the Federal Reserve Data, only 9% of U.S. households had at least $1 million in net worth. That 9% made the majority of charitable contributions, owned the majority of equity in unincorporated and closely held businesses, and had a disproportionately large share of investable assets as compared with the remaining 91% of the population. These “wealthy households” made 53% of all household charitable contributions ($117 billion). They also owned 93% ($13.7 trillion) of business equity owned by all households in unincorporated and closely held businesses, and they had 41% ($10.3 trillion) of investable assets owned by all households, i.e. liquid assets, stocks, bonds, and mutual funds. Typically, wealthy households do not have million dollar incomes. In 2006, the average wealthy household income before tax amounted to $354 thousand, while the median amounted to $159 thousand. Only 6% of millionaire households made as much as $1 million in 2007. The pattern is similar for unearned income. The average household unearned income of millionaire households was $145 thousand in 2006 and the median was $18 thousand. Only 6% of wealthy households had unearned income of as much as $500 thousand. Nevertheless, wealthy households received 86% of total unearned income received by all households in 2006.

Among wealthy households, both household income and household assets are importantly related to charitable giving, but assets, especially investable assets, are much more important than income. Statistically, the relationship between the value of assets and the amount of charitable giving is roughly 7 times stronger than the relationship between the level of income and the amount of charitable contributions. Put simply, millionaire households make charitable contributions more because they are wealthy than because they earn a high income.

Most (more than 90%) millionaires acquired their wealth in their own lifetimes through business, investment, or service as corporate executives rather than through inheritance. The majority became wealthy through growing their own business or investing in businesses of others. They tend to be entrepreneurial and agents of economic expansion. In earlier paragraphs we saw that as a group they own 93% of the equity in unincorporated and closely held businesses owned by all households in the U.S. Even in retirement millionaires participate in business opportunities. They contribute to local economic development as a source of funds, as a potential investor, and as an agent for creating new businesses and expanding established ones.

This seems to be a paean to trickle-down economics, and even those of us who don't believe in trickle-down economics can be tempted to accept that, since our wealthiest fellow citizens have such a large fraction of the total net worth, trickle-down must be the only relevant model for understanding wealth.  

I question the realities behind the statement that "Most (more than 90%) millionaires acquired their wealth in their own lifetimes through business, investment, or service as corporate executives rather than through inheritance."  

• Many of them, I suspect, were given college educations by their parents or grandparents; a private college education today costs about $200,000.  Not an insubstantial figure.  Graduate school runs about the same amount, particularly in the private universities or for out-of-state students at public universities.  
• Many of them, I suspect, were given the 20% down payment on a home either by the government or by their parents or other relatives.  It might have been 20% of $80,000 or $125,000, which might sound trivial in relation to their 2007 $1,000,000 corpus -- but it made a big difference which the paragraph above fails to acknowledge. (Paying off the other 80% made a relatively small contribution to their "home equity.") The appreciation of the land under that home may be a major contributor to their net worth. 

We may call that "investment" but it is really the legalized privatization of that which one's community and one's local, state and federal governments' spending has created.  Self made men?   Hmph!  And the startup funds for their businesses may have come from borrowing on that land equity.  -- and of course that interest is deductible on one's federal and, likely, state income taxes.  A nice subsidy, huh?  And the most profitable businesses tend to be those who own the building and land on which the business is conducted -- and the sites of others' businesses too!   Those folks may work hard -- almost as hard as their employees -- but they also get the benefit of the local economic activity as it drives the selling and rental value of their landholdings upward.  Bu we permit them to call themselves self-made.  Aren't we generous?   Or would it be more accurate to say that we're wearing blinders?

We should set the playing field level between landlord businesses and tenant businesses. (Land value taxation would do this.)  Landlords do not create land!  To permit structures which compensate them as if they do is dumb.

A bit later, the study continues,

According to the Survey of Consumer Finances, sponsored by the Board of Governors of the Federal Reserve, on a national basis households with net worth of at least $1 million, headed by a person age 60 or older, comprise 4% of all households but donated approximately 25% of all household charitable contributions in 2007 (the most recent year for which data is available).

The first paragraph of their 3-paragraph conclusion reads:

During the December 13, 2009 edition of “Meet the Press” former Chairman of the Federal Reserve, Alan Greenspan, touted the importance of rising stock prices to economic recovery. In a broader context Greenspan’s words highlight the importance of wealth to economic growth. During decades of research at the Center on Wealth and Philanthropy we have consistently found that wealthy households contribute disproportionately more to charitable causes both from their household assets and from their foundations, trusts, and donor advised funds.

Perhaps we would have less need for charity if we had a less concentrated distribution of wealth in America.  Perhaps, if we funded our local, state and federal spending via taxes on the value of the commons that individuals and corporations and other domestic and foreign entities claim as their own --  instead of taxing sales and wages and buildings -- we'd create more opportunity for more people to earn adequate incomes.

Until we do that, though, shouldn't we be collecting back this land appreciation once per generation, through taxes on the largest estates?

How should we-the-people pay for ... snow removal?

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: 

• Taxes: What Are They Good For? at http://www.henrygeorge.org/canons.htm
• Canons of Taxation at http://www.wealthandwant.com/themes/Canons.html

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.)

If you tend to think that "balance in taxation" is a good idea, you might take a look at The Fallacy of the 'Three-Legged Stool' Metaphor, by Bill Batt.  You might see it differently.

Looking Forward

Looking for the phrase "I am for men" (see an earlier post, below) I came across a 1906 book by August Cirkel (circa 1870-1946), of Chicago, entitled "Looking Forward."  His prefatory note is as follows:

An apology is, peradventure, due the memory of Edward Bellamy for the semi-plagiarism in the title of this book.  It is true that "Looking Backward" suggested the name I have given it. The ideally happy condition of all the people, that Mr. Bellamy pictured as resulting from socialism, I look forward to as a result of a higher development of individualism.

The variety of topics considered may make the work seem presumptuous.  But though the subjects are various, the same strain runs through all.   Like the Irishman with his shillalah at the county fair, wherever I have seen a monopoly head, I have taken a whack at it.  If there are any sore pates or broken craniums on account of my impartial and promiscuous blows, I shall know that I have not labored in vain.

A.C.

A passage in the middle of "Looking Forward" caught my eye, and I added the preceding ones for setting the scene.  In this age of "too big to fail" and 10% of our households having over 70% of the aggregate net worth, a lot still rings true after 100 years:

We have one concern controlling far more than half the oil, another more than half the iron, another half the coal, another forming to control much more than half the copper, a few combinations working towards ownership of all the railroads and steamship lines; another, meat; in our large cities, the public service corporations are one by one being gobbled up by the same group of capitalists who control these other companies. It is probably safe to say that the so-called trust crowd now controls at least forty percent of the business and wealth of the country; moreover, the portion so controlled is organized on such a basis that the profits exacted each year reach the public with almost the directness of a tax. Without exception each one of these gigantic monopolies makes millions in the way of earnings disbursed to pay interest on bonds and dividends on stocks.

The profits of the Standard Oil Company have averaged forty percent per annum for many years; others of these companies are nearly as successful. In ordinary business only the very few after a period of twenty or thirty years can show a larger capital than they had at starting, and many fall by the wayside; but each, and every one, of these giant corporations makes tremendous gains. The public seems to have acquiesced in their right to fix the tribute that they will levy each year, and has grown so accustomed to their demands as not to analyze this right.

A few years ago Henry George tried to stir the people to a realization of the wrongs contained in the private ownership of land; but excepting the few Single-tax Leaguers who still try to keep alive the fires he kindled, few have given serious consideration to this matter, and many think him to be a vain dreamer of impossible conditions.

His theory as to the manner of applying a remedy has doubtless estranged many who accede to the correctness of his views as to existing wrongs. His argument as to the natural right of all mankind to the earth, the air, and the waters on the earth or underneath it, cannot well be refuted.

Let us suppose ten families occupy an island, and that this island constitutes all the land on the earth. Now, assume that they organize a regular government, the rights of each and all being fully considered and agreed to by every one, and, further, that every individual is perfectly satisfied that justice has been done him. Suppose that they agree to divide the island into ten equal parts, giving each family an equal portion, for which a patent is issued by the government, each soul on the island being satisfied that the division is fair and also satisfied with his allotment. There being no one on earth except the ten families, and as they are all content and happy, at first blush it might appear that they had a right to make this apportionment, and that there is no element of wrong concealed anywhere in the transaction. In doing this they certainly would be doing no more than has been done by nearly every people in history, and on a much more equitable basis. They overlooked, however, the changes to be wrought by time. After the apportionment, let us say that the islanders, being ordinary human men and women, went about their vocations in the usual manner, and led their lives as humankind generally does; let us say that there existed among them the same differences in capacity and temperament and habit of life that commonly prevail among people — some being thrifty and industrious, others improvident and idle, as men have been, are now, and perhaps always will be. What would probably happen? In a short space of time possibly fifty percent of the population would sell their share in the island to the provident class, and in the course of time twenty-five percent might come to hold absolute title to all the land. In consequence, the children born of the families that sold their holdings would have no land. The children born to the twenty-five percent would own it all.

If the laws of the island were based on the same principles as now obtain in the laws of the United States, it would be perfectly lawful for the twenty-five percent to say to the seventy-five percent that they might work the land on shares, giving the landlords half of the product of their labor. As there would be no possibility of procuring a livelihood otherwise, this offer would have to be accepted, if the laws were obeyed.

Normally, it is hard enough for a laborer to gain his living by the sweat of his brow, though he gets the full product of his labor. How much more difficult the situation when half of all he produces must be handed to another! In Ireland the situation was parallel to this; the poor Irish tenants tilled the soil of their native land, but instead of getting the full product of their labor, a large portion was pitilessly exacted by alien landlords. In lesser degree in nearly every country on earth the situation is comparable to this, the burden being disguised in various ways.

We, then, have seventy-five percent of the islanders giving up to the twenty-five percent one half of the product of their labor. Assuming that the original ten families that organized the government and apportioned the island have all died, by what God-given principle should the seventy-five percent of the population be required to give half of the fruits of their efforts to the twenty-five percent? Yet under our own laws would this not be possible, yea, natural? Without doing anything whatever, the twenty-five percent would be getting a revenue one and a half times as great as they could produce if working on an equal basis with the others. Because their fathers had got possession of the island, these few without toil get half again as much as they could produce if toiling, while the rest, though constantly laboring, get only half of the results of their labor. There are doubtless those who will say that the thrift of the original provident islanders should entitle them to transmit their gain to their children. Very good, but how about the thrift of the seventy-five percent now? The twenty-five percent may be compared with the original spendthrifts, as they squander without toiling, and by a just continuance of the rule, the children of the thrifty toilers should get back the island. On the face of the proposition this would manifestly be impossible. Let us go a step farther. Suppose the twenty-five percent, grown haughty with power, exercise it so arbitrarily that the others object, would it not be possible under laws like the laws of the United States, for the minority to refuse the majority employment except on the terms of the minority? What must be the consequence? Either submission to slavery by the seventy-five percent or starvation, if the laws are obeyed, or revolution and rebellion, if they are not. It cannot be an answer to the argument to hold that the ordinary principles of morality would restrain the minority in their exactions. History has not demonstrated that those who grow great with power never grow greedy. Then, if there is no justice in requiring the seventy-five percent to give up half their labor, is there justice in a situation or in laws which compel this result?

In the United States we have not even been as fair as the islanders, no equal division ever having been made, nor has every person been satisfied that his share is just; yet most of the land has been passed to the possession of private owners by patent from the government, and the average man has always thought, and the average man now thinks, that as a general proposition this was just, although knowing and admitting the possibility of minor wrongs. People have had the notion of private ownership of land so thoroughly grounded by long custom, that it seems the natural, rather than the artificial, manner of holding. Community of interest is repugnant to most minds. Socialism is believed to be a theory that might answer the requirements of angels, but finds small space for application among the wingless crowd on earth. Yet if the principle of private ownership is wrong as applied to the island, is it not equally wrong with us?

A few years back, owing to financial stress in the business world, vast numbers of men were idle from inability to find employment. Coxey gathered together a tatterdemalion army of the riffraff, tramps, and bums of the country, and marched them to Washington to emphasize to Congress the hardship of the situation, and to beg relief. He was derided and jeered at every hand. The public looked upon the idea as one of a crank, laughed at it, and dismissed it from their minds. Yet out of this army of thousands, how many possibly were sincerely desirous of a chance to earn an honest livelihood? The country at that time was infested with tramps, but since times improved the majority of them have gone to work again, and Coxey is forgotten. But way down deep, unperceived by the casual thinker and busy every-day man, some elemental principle had been violated, and in consequence the deplorable condition resulted. These men had a right to live. They had a right to labor. They had as good a right as any one of us to use God's soil, and to breathe God's air, and pity for them on our part by no means fulfilled our duty towards them. Somehow, little they knew how; somewhere, little they knew where; some time, little they knew when,— they had been cheated of the rights that are due to every human being that comes upon this earth.

The Declaration of Independence holds it to be a self-evident truth, that all men are entitled to life, liberty, and the pursuit of happiness. What a grim sardonic joke this would be, if read some Fourth of July to a ragged army of a hundred thousand starving men, women, and children, willing to labor, but with naught to lay their hands to! Hollow, indeed, would it sound, and the mockery would be so apparent to the multitude that I doubt not they would feel that somehow a terrible injustice had been done them.

When the ten families divided the island they allotted what belonged to God, and not to themselves, except as a blessing flowing from Him. They had no right to alienate the title from the whole community. The island belongs to every child who is born upon it, and each has as good a right to its benefits as every other. The ten families deeded away what they had no right to. Posterity was not considered, but the child then unborn owed no duty to the agreements made adverse to his interests by incompetent, reckless, luckless, or improvident ancestors, who bartered away his birthright. It was not theirs to give.

We must all, high and low, rich and poor, young and old, somehow or other, directly or indirectly, get our living from the earth. Necessity compels every one to eat to live. How fulfill this necessity except by application to Nature? What right has any government so to shape its laws that one single human being is debarred from his God-given right to labor in order to sustain his life? Organize society as you will, if provision is not fully made to protect the unborn souls to come, an injury is done, a seed is planted that will grow and bear suffering.

Henry George's theory is correct. The land belongs to all, the air and the water belong to all. If we are on earth for a purpose, and the God of chance is not ruling our destiny, as no man who thinks deeply can believe, it behooves us to conform to Nature's laws. The rules of conduct prescribed by people hundreds of years ago should have no binding force upon us today against our reason. Because people have always divided the land, it is not proof positive that their methods have been correct. Humanity has not reached the acme of advancement by any means. Some things are done vastly better today than ever before in history. It seems as if progress is being made. The world seems to be growing better. Yet how would this be possible but by the correction of previous wrong conceptions? Progress can never be made contrary to Nature's law; the decay of the nations of history proves the inexorableness of her workings. Conformity to her decrees, through principles of justice, of liberty, of equality, has ever led to advancement at a tremendous pace; but selfish interests have always injected into the laws of the nations the virus of destruction; decay ensues, the people become enfeebled, corruption reigns, and dissolution follows through the onslaughts of vigorous, lusty races that have grown strong through meting out the justice which the older nations had forgotten.

No government is good that does not give the greatest consideration to its lowliest citizens.

Let's talk about "our lowliest citizens."  Recall that 10% of us have title to 71.5% of the aggregate net worth. The bottom 75% of us have an amazing 12.7% of the aggregate net worth.  A slightly different 10% of us receive 47.2% of the before-tax income, and 20% of us get 61.0% of the pre-tax income.  The bottom 60% of us share --  are you ready? -- 20.9% of the pretax income -- and most economists agree that we're paying 15% of that in social insurance taxes on our wages, plus federal and state income taxes, sales taxes, taxes on our buildings and on our land (if we own any).  (Remember Leona Helmsley's observation about who pays taxes.)

Looking forward ... to more of the same?  To a society which doesn't automatically enrich a small segment of us at the expense of the rest, who, most of us would agree, work equally hard, even if we're not in privileged categories of the real estate, finance, insurance or natural resources sectors, or otherwise endowed with a monopoly which feeds them so abundantly at the expense of others.

In many fast examinations of the Gilded Age, Edward Bellamy's book on socialism, "Looking Backward" is mentioned in the same sentence with Henry George's book best-selling "Progress & Poverty."  The former book seems to be more widely assigned reading, in courses which bring in original sources.  This is a shame.

Land, labor and capital: cleaning up after the snow storm

Last Saturday, 2/6, the mid-Atlantic region received an amount of snow that exceeded what it normally gets in an entire winter.  By Sunday afternoon, major highways had a single lane well-plowed and a second one barely passable.  We had delayed our planned trip from Connecticut (where we're used to snow and our towns budget for snow removal) to southern Delaware (where snow is much less common) from Friday.  We arrived to find our destination had about 15" of snow and plowdrifts blocking the driveway.   We were grateful to have a very short driveway.  Having read a few local blogs, we'd packed 2 snow shovels, an ice hacker (MUTT = multi-use tough tool), some salt and a long pole for getting snow off trees, as well as boots and parkas.   Some young men cruising the neighborhood looking for work had one snow shovel, and they borrowed one of ours and moved enough snow to get our cars off the street.  We knew from the local blogs that shovels had sold out well before the snow started.  Had we thought more deeply, we'd have bought 5 or 10 at our CT grocery store to offer to neighbors.  I also wished we'd brought a Wovel with us; it would have had a great workout.

The next day, I went to see if anyone was in need of some shoveling help.  One neighbor's car was sitting on top of compacted snow, and the MUTT turned out to be just what we needed to break up that hardened snow.  The MUTT was also very helpful when I needed to hack through the plowdrifts, which had hardened.  Without it, I would have been much less productive; my shoulders would hurt more, and I would have gotten less done.

While there are many pickup trucks and tradesmen's SUV's in the area, almost none have snow plows here; snow of a quantity that would require it is so infrequent as to make it uneconomical.  Within a couple of days, though, some "bobcats" started to appear; I don't know how far away they came from. 

A second storm arrived Wednesday, bringing more snow.  We'd mostly cleared our driveway after the first storm, and getting the second cleaned out was easier.  State and local snow plow drivers were very kind and avoided socking us with a plow drift, once we'd opened our driveway the first time.

I titled this post "land, labor and capital."  Why?  Well, here are some of the thoughts that occupied me while I shoveled and hacked. 

• the young men who came looking for work on Sunday could not earn a living unless they had some land to work on -- in this case, ours.
• their single snow shovel -- capital -- made them far more productive than they would have been with no tools at all.  But their lack of a second shovel made them far less productive than they could otherwise be.  Even if they'd had funds to buy a second shovel, shovels were simply not available.
• having the right (specialized) tools for the job -- the MUTT, or a truck-mounted plow -- plus the skills to use them well makes a big difference in how much one can do with 10 minutes or 2 hours of labor.

I listened to a radio program coming out of nearby Washington, DC, which was largely shut down by the nearly unprecedented snows (there was no mail delivery from Saturday to Thursday; the federal government was pretty much shut down), and there was some discussion about whether towns and cities ought to spend taxpayer funds keeping inventory of plows to handle snows much heavier than what typically occurred, or whether perhaps there should be incentives for private individuals to own and maintain truck-mountable snow plows.  Did it make sense to tax everyone, say, $50 more per year to pay for better snow-management equipment if it would save $100 worth of productivity per person?

I no longer remember what I heard on the radio, and what parts of this were my own musings.  But it did pass through my mind that such things as snow removal ought to be financed not through taxes on people's wages or interest income, or on their purchases, but rather should be paid for by taxes on land value.   People are willing to pay more to live where better services are provided, where more consistent utilities are provided.

Taxing the poor people of Washington, D.C., many of whom are tenants, $50 each, and taxing the wealthy homeowners in Georgetown $50 each is not nearly as fair as taxing people in proportion to the value of the land they own.  Georgetown homeowners ought to be paying a lot more each than the owners of subdivided brownstones in less expensive neighborhoods.  And the tenants of those subdivided brownstones are paying significant rents to their landlords; their share of the costs of providing local services should come out of the payments their landlords receive, which are a function largely of their location in Washington, D.C., not luxurious landlord-provided amenities within those homes.

The tenants are already paying 30% or more of their income for housing, which seems to me to be a form of sharecropping; their landlords share in their labor.  For that matter, those of us who are paying mortgages are sharing our wages with a mortgage lender, who in turn paid off the seller of the property we're bought.  It is highly unlikely that more than half of the purchase price was for the improvements to the land (unless it is a brand new house in a fringy area); most of the purchase price -- and the mortgage payment -- are payments for land value.  And the seller didn't create that value, so it seems perverse and odd to me that he is the one who reaps what the community has sown. Our structure permits him to privatize this public investment.

The remedy, of course, is rather simple: shift our taxes OFF labor, OFF sales, OFF buildings ... and ONTO land value.  Many supposedly intractable problems will start to evaporate when we do that.  And we can do it very gradually if we choose, or expeditiously if we see fit.

The House of Tranquillity: A "Middle Class Agenda"

Op-Ed Columnist - The House of Tranquillity - NYTimes.com. Finally, Biden was asked to come up with a middle-class agenda. This is a surprisingly difficult job because many of these programs — credits for college affordability and child care — fairly reek of Clintonism. This is an administration that is staffed by Clintonites but does not want to appear Clintonian in any way.

Let's talk about America's middle class.  How should we define the middle class?  If we define it in terms of income, we find that the middle quintile of households in 2007 had median net worth of $88,100.  That is, of the middle 20% of us, half had household net worth of less than $88,100, and half had more.  That's not a whole lot of money to fall back on, particularly when one considers that much of that is home equity.

The same middle-income quintile had a median before-tax family income of $47,300.  That is, half had more, half had less.

That middle income quintile accounted for 10.9%  -- no!  that was the the 1989 figure.  By 2007, it was 7.54% -- of America's net worth in 2007. 

Here's how the net worth was distributed across the income quantiles in 2007:

• 	Top income decile:	59.45% of the net worth
  	Second income decile:	10.92% of the net worth
  Top income quintile:		70.37% of the net worth
  Second highest income quintile:		13.48% of the net worth
  Middle income quintile:		7.54% of the net worth
  Fourth highest income quintile:		4.84% of the net worth
  Bottom income quintile:		3.77% of the net worth

    [source: SCF chartbook, p. 43, and my calculations]

If we define the middle class more broadly -- as the middle 60% of the income distribution -- our "middle class" has 25.86% of the net worth.

And here's how the before-tax income was distributed across the same income quantiles:

	Top income decile:	47.19% of the before-tax income
	Second income decile:	13.77% of the before-tax income
Top income quintile:		60.96% of the before-tax income
Second highest income quintile:		18.18% of the before-tax income
Middle income quintile:		11.23% of the before-tax income
Fourth highest income quintile:		6.72% of the before-tax income
Bottom income quintile:		2.92% of the before-tax income
[Source: SCF Chartbook, page 7 and my calculations]

Using the broader definition of middle class -- again, the middle 60% of the income distribution -- our "middle class" has 36.13% of the before-tax income.

(Think of this quantile data as you read Bob Herbert's recent column "The Worst of the Pain.")

Alternatively, if we define the middle class in terms of net worth -- erase the above income-based definitions from your mind for the moment! -- here's the corresponding data:

The median household arranged according to net worth had net worth of $120,600 [source: SCF Chartbook, p. 39]  That doesn't sound so bad, does it?

Let's look at the net worth quantiles:

	Top net worth decile:	71.46% of aggregate net worth
	Second 15% of net worth holders:	15.83% of aggregate net worth
Top net worth quartile:		87.29% of aggregate net worth
Second highest net worth quartile:		10.21% of aggregate net worth
Third highest net worth quartile:		2.60% of aggregate net worth
Bottom net worth quartile:		-0.10% of aggregate net worth
[Source: SCF Chartbook, 2007, page 73]

The middle 50% of us, arranged according to net worth have 12.81% of the net worth.

If you define our middle class as those between the 50th and 85th percentiles of the net worth distribution, our middle class owns 26.04% of the net worth.

How is the income distributed across those same net worth quantiles?

	Top net worth decile:	41.25% of before-tax income
	Second 15% of net worth holders:	16.56% of before-tax income
Top net worth quartile:		57.81% of before-tax income
Second highest net worth quartile:		19.76% of before-tax income
Third highest net worth quartile:		13.80% of before-tax income
Bottom net worth quartile:		8.63% of before-tax income

The middle 50% of us, arranged according to net worth, have 33.56% of before-tax income

If you want to define our middle class as those between the 50th and 85th percentiles of the net worth distribution, our middle class is getting 36.32% of the before-tax income.  35% of us getting 36% of the income.  That's middle, I guess.

If you've gotten this far, I'll bet that you will think that we might want to tax income more heavily at the upper end of the income spectrum, or tax large estates more heavily.

I'm going to propose something different.  Something which digs deeper, and seeks the source, the cause of the problem, rather than trying to redistribute the income or net worth after the fact.

Henry David Thoreau, in Walden, wrote this:

There are a thousand hacking at the branches of evil to one who is striking at the root, and it may be that he who bestows the largest amount of time and money on the needy is doing the most by his mode of life to produce that misery which he strives in vain to relieve. It is the pious slave-breeder devoting the proceeds of every tenth slave to buy a Sunday's liberty for the rest. Some show their kindness to the poor by employing them in their kitchens. Would they not be kinder if they employed themselves there? You boast of spending a tenth part of your income in charity; maybe you should spend the nine tenths so, and done with it. Society recovers only a tenth part of the property then. Is this owing to the generosity of him in whose possession it is found, or to the remissness of the officers of justice?

Henry George wrote this, in the opening chapter ("The Problem") of Progress & Poverty (1879), describing the first 100 years of America's existence as a nation:

It is true that wealth has been greatly increased, and that the average of comfort, leisure, and refinement has been raised; but these gains are not general. In them the lowest class do not share. I do not mean that the condition of the lowest class has nowhere nor in anything been improved; but that there is nowhere any improvement which can be credited to increased productive power. I mean that the tendency of what we call material progress is in no wise to improve the condition of the lowest class in the essentials of healthy, happy human life. Nay, more, that it is to still further depress the condition of the lowest class. The new forces, elevating in their nature though they be, do not act upon the social fabric from underneath, as was for a long time hoped and believed, but strike it at a point intermediate between top and bottom. It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.

Now go back and look at the distributions of income and of net worth in America in 2007.  I've not provided the trend data here, but the 2007 snapshot tells the story well enough.

10 of the largest endowments in N.E.

10 of the largest endowments in N.E. - Boston.com.

This slideshow lists 10 of the top 11 university endowments in New England (MIT did not reply).  They range from Harvard's $25.62 billion down to Smith College's mere $1.09 billion.

It strikes me as odd that the homeowners and businesses in each of their home towns and cities are asked to subsidize them by exempting their landholdings from the local tax base.

This is particularly stark since relatively few of the students at these universities are graduates of the local high schools.

Cui bono?

And who pays?

What a subsidy, often from poor people to rich ones.

And it makes one think of the wisdom of Leona Helmsley.

Urban land is our most valuable resource, and those who occupy it ought to be compensating their neighbors.  Universities are large, and often growing, landholders, forcing out tax-paying neighbors, and increasing the share of the burden of supporting municipal services paid by the remaining non-exempts.

Solution?  Exempt the buildings, but require such entities to pay their full share of the tax burden based on the value of their land.  (Exempt everyone else's buildings, too, of course!)

Reading Lowell Harriss

As I've noted in an earlier post, Lowell Harriss died a few weeks ago.  I've been reading some things he wrote during his long and productive career.

The first is a piece he wrote in 1978, a few months after Proposition 13, California's taxpayer initiative which lowered property taxes and "protected" property owners from paying for services through property taxes, was passed.  It is entitled "Property Taxation After the California Vote." 

He starts with this: What approach to property taxation would be most in our interest and that of our children?

He provides some history of the property tax, in general and then specifically in California.

Keep in mind that, in California more than in most of the country, assessments on homes rather promptly reflect market conditions -- in an environment in which house and land prices have been rising rapidly. Often, however, local officials did not use the increases in tax base to finance offsetting reductions in tax rates. Homeowners faced rising tax bills; cash income, especially for retired persons, did not always go up correspondingly.

California's colleges and universities were, however, among the best in the US, and surely some significant portion of the public spending was to provide the very services which caused California's property values to rise.

Lowell went on to say,

The full results of Proposition 13 will not appear at once. Only time will reveal whether new jobs develop now as property owners use the addition to their disposable income; whether extensive declines will occur in state-local employment; and how much more erosion of local authority will result from expansion of state payments to replace revenues lost by the sweeping changes in real estate taxes.

He continued,

Present owners of property have voted themselves capital gain "windfalls." The reduction in property taxes will tend to raise real estate prices. Today's owners, in voting essentially permanent reductions in annual property taxes, have enlarged the stream of net benefits (income) to be capitalized in valuing real estate. This one-time capital gain in effect absorbs much of the future benefit from the tax cut. In this respect, the specific results of Proposition 13 are difficult to judge because assessments (but not the tax rate) will rise after a sale. Future buyers will pay a higher price -- higher by enough, in general, to offset the tax benefit.  "No election will ever be lost by votes in the future," runs the conventional wisdom. And certainly California voters did not have future property owners (or voters) in mind when they rallied to the support of Proposition 13.

Lowering the tax reduces the cash required to hold on to underdeveloped land. "Speculative underutilization" becomes less expensive. Waiting for population growth and inflation to boost prices will cost less. The current offerings of land will decline -- and thereby prices will be raised -- because owners face lower cash pressure to sell or develop.  Income tax considerations, of course, complicate individual decisions and require some caution in generalization, but the net effect on land use will be some -- or much -- distortion away from the direction of free-market forces.

Will the California economy get a boost from Proposition 13? Of course it will. Other things being the same, tax something, and there will be less of it (land being an exception). The 50- to 60-percent cut in taxes on man-made capital will alter favorably the "arithmetic" of construction projects in California. How much so is difficult to say. This cost reduction will interact with many other factors, including the forces tending to raise land prices. The change in prospective net returns at the margin may be more modest than impressive. But one conclusion is clear: More capital will flow where tax reduction improves the prospects for investment.

He continues,

The once widely accepted criticism that property taxes are regressive does not survive modern economic analysis. In fact, a persuasive argument in favor of property taxation for local services can be made on grounds of equity. Especially important, it seems to me, is the fact that in effect this tax enables localities to capture some of the fruits of forces raising prices of land, including public outlays on streets, schools, sewers, and other facilities.

He concludes,

Finally, and probably of greatest potential, there is a real opportunity in the wake of Proposition 13 for restructuring fundamentally the way we tax property. We can reduce burdens on man-made capital and make up the revenue from higher taxes on site values, a procedure which seems to me eminently desirable on several grounds. This possibility should be part of the broader public discussion of the role of property taxation stimulated by the vote in California.

One change may be politically tempting -- to reduce burdens on residential property while maintaining or even raising burdens on business and public utility property. Such moves would not only add to concealment of costs of government in the form of hidden burdens on consumers and investors. In addition, the productive portions of the economy would suffer. Building better communities will not come from boosting taxes on business.

Americans should be "up in arms" -- or at least doing something -- about restricting and effectively controlling the growth of government. "Revolt" seems to me too strong a term; it also seems misleading, implying as it does that a single, dramatic action will do the job. Patient, informed, continuing efforts are required. Among them will be the reform of property taxation to develop its potential as a high-quality revenue producer.

Another, earlier paper entitled "Equity of Heavier Reliance on Land Taxation (Location Value) and Less on Improvements" (1970), starts with this:

    Greater fairness in sharing the costs of local government constitutes a prime -- but not the only -- reason for shifting much of the tax from improvements to land. This country will be around for a long time. So also, I hope, will meaningful local government. Effective freedom requires financial independence, including ability and responsibility for raising revenue.

    One of the biggest legacies we leave our children will be the tax system. We want to make it as good as possible. Equity is one (again, not the only) element of "goodness" of a tax system.

He proposes a shift to a structure where the millage rate on land is about 4 times that on buildings.  He talks about transition issues, and issues of equity during and after the transition:

    Two markedly different sets of equity issues command attention. The one of dominant concern ought to be the situation in which we (and our children) would carry on our affairs after generally full adjustment as contrasted with conditions then if present practices were to continue. The long run in which "we" are not all dead! The other concern involves the transition. The shift itself would produce results distinguishable from those to prevail after the economy had settled down to the new system.

Writing of long-term equity issues -- remember that this was 1970 when you consider the dollar figures --

    Community Use of Values Created by Social Development and Local Government Spending

    Over the longer run, landowners would get less of the increment in the values of location. The general public would get more in the form of a larger flow of the rising yields of the worth of location (land) to finance local services. On this score, the equity results commend themselves very strongly indeed. Socially created values would go for governmental, rather than for private uses -- and locally. The absorption of the increments for local, rather for state or national, governmental use would channel these funds on a benefit basis geographically.

    The localities doing most to make themselves attractive would have most of this revenue source. In major cities $10,000 to $15,000 (now often considerably more) of governmental outlay is frequently needed for each new dwelling unit -- schools, streets, fire and police, sanitation and health, park and prison, facilities. Under present arrangements much benefit from such outlays in developing areas accrues to the owner of locations being "ripened" for more lucrative use; his payment in taxes (and special assessments) toward the cost will generally be only a modest portion of the total.

He describes this as a "burdensomeless" tax:

    As for the future, the tax on values of location above their present levels would be almost burdensomeless, except as owners of land and their heirs get less of the "unearned increment" of rising values over the decades. Much of the element of true economic surplus would be used for public purposes. For those parcels of land whose values drop, the annual tax would also decline. Then, because tax rates on land would be higher than today, local government would share more fully in the loss of worth. For landowners the proposal would not be a one-way affair which assumes that land always rises in price.

    No other revenue source seems to me to compare so favorably on this score of fairness. Future users of land would be no worse off for the much heavier tax they would pay on the value of location. The purchase price of land would be correspondingly less. Of the total flow of yield of location value, interest (explicit or implicit) would be smaller, taxes higher. Who would be less well off? The landowners and their heirs who would have gotten the (unearned) increments!

    More of the rise in land value which results from (1) governmental investment in community facilities and (2) the general rise in demand due to the growth of population and income would go to pay for the costs of local government. Such a tax on a pure economic surplus seems to me about as fair as any imaginable source of funds for financing community services. The National (Douglas) Commission on Urban Problems estimated that in the 10 years to 1966, and despite rising interest and tax rates, land prices rose by over $5,000 per American family -- $250,000 million.  Even a modest fraction of this amount if used for local government would have permitted quite a reduction of burden on buildings. The estimated rise in land prices was over four times the total growth of state-local debt and was greater than all of the property tax paid in the 10-year period.

And

    Land as area is fixed in quantity. Tax it heavily, and it will not move to some other place, or decide to take a vacation, or leave the inventory of productive resources by going out of existence. Tax land lightly, and the favorable tax situation will not create more space in the community.

    Our ethos apparently ties economic justice -- equity -- to rewards based on "accomplishment." This principle does not lead to justification of large rewards because of the ownership of land. Differences, big ones, in payments for human services or for the use of capital can rest on what the recipients have done. But for the owners of urban locations such justification can rarely be found; when there have been private inputs for community development, to the extent feasible administratively, they belong on the tax rolls as improvements rather than as land.

And just before he concludes, he writes,

    What an owner can get in the form of land price increases in and around cities has made rich men out of owners of farmland, vegetable plots, and waste areas. More than one owner of a few acres of potato land on Long Island or farms on the outskirts of many a city in the United States, of a small plot of rice land near Tokyo or Bangkok or Taipei, has reaped handsome gains because of the pressure of population. In America, North and South, in Europe and Australia and Africa, private enrichment has come to the passive owner of land who has done little or nothing to enlarge its worth as part of the city whose growth has brought his good fortune. In fact he may have paid no more than an infinitesimal fraction of the taxes which have financed the streets and other governmental facilities that have helped to elevate the value of his land.

Next, I moved on to a longer piece, from the same time, and containing some of the same material.  I ended up feeling that it is perhaps the best piece I've read in a long time on Land Value Taxation.  It is titled "Property Tax Reform: More Progress, Less Poverty" and it is a lecture he delivered at DePauw University in 1970.   I commend it to your attention.

Finally, I note a book from the TRED -- Committee on Taxation, Resources and Economic Development -- series (#6) entitled Government Spending & Land Values: Public Money & Private Gain edited by C. Lowell Harriss (1973).  Each book in this series came out of a 2- or 3-day conference, held at the University of Wisconsin-Milwaukee.  Lowell organized this conference, and wrote the book's introduction.  Here's the dust jacket material:

Billions of tax dollars are spent annually on government subsidy programs which are designed to help certain groups, areas, and industries, and contribute to the general welfare. Despite the good intentions of legislators, however, analysts point to evidence that the programs are not only burdensome for the taxpayer but often fail to do their intended jobs. Critics find that major benefits go not to those whom the programs are designed to help, but to others who can "capitalize" on them.

One major feature of the subsidy benefit pattern -- unintended but predictable -- is the capitalization of land values. The value of land will increase when the benefits, chiefly money income, are enhanced by government subsidization. When the land is sold, the benefit of a subsidy which seems likely to continue will be captured by the seller. Thereafter, tax funds that continue to subsidize a program will not fully benefit those for whom they were presumably intended, but the seller will have made a capital gain.

A classic example can be drawn from the experience of federal farm programs. Taxpayers and consumers have been spending billions annual to aid some farmers. In practice, of course, these programs have often -- and intentionally -- reduced farm output and raised consumer prices. The consumer-taxpayer is thus dealt a double blow, in effect subsidizing an increase in his own food prices. Yet the operating farmer, burdened with a higher land price, fails to get the full benefits of the programs established for his welfare.

In farm programs, as in some other subsidy programs, the expected annual benefits are capitalized into higher land prices. Then, after land prices have gone up to reflect these benefits, the annual payments to farm operators in effect support the higher land prices. In effect, the seller of land realizes the benefits of government subsidy into perpetuity. A somewhat similar pattern is to be expected in other public spending programs, including those concerned with urban renewal, where benefits are localized. The pattern shows that farm programs do not raise wages of low-paid farm labor, that urban projects do not rid cities of slums, and that the taxpayer-consumer bears the burden of both.

This volume explores, and at least attempts to define, the extent to which land values tend to capture the benefits of subsidies and other government spending through capitalization. It includes papers by proponents as well as critics. The contributors, who include some of the nation's leading economists, discuss the nature and effects of farm and housing programs, commodity price supports, transportation outlays, land preservation projects, water resource development, and urban renewal programs. Their work will be of more than routine interest to economists, political scientists, lawyers, political officeholders and government officials, planners, and all others who seek to unravel the complex fabric of multi-billion-dollar government spending programs.

Lowell made contributions in many parts of economics; I am probably familiar with only a small portion of his work, but I am grateful for it.

Tishman Speyer Surrenders Stuyvesant Town and Peter Cooper

Tishman Speyer Surrenders Stuyvesant Town and Peter Cooper

It is interesting to see who wanted to participate in the increase in land value in New York City through investing in the housing deal which attempted to convert middle-class housing into something more upscale:

Many of the other companies, banks, countries and pension funds — including the government of Singapore, the Church of England, the Manhattan real estate concern SL Green, and Fortress Investment Groups — that invested billions of dollars in the 2006 deal stand to lose their entire stake.

“At the time, it looked like a sound investment,” said Clark McKinley, a spokesman for Calpers, the giant California public employees’ pension fund, which bought a $500 million stake in the property. “When the market tanked, we got caught.”

Calpers, he added, has written off its investment. So has Calsters, a California pension fund that invested $100 million, as has a Florida pension fund that put $250 million into the deal. ...

The Government of Singapore Investment Corporation, which made a $575 million secondary loan, and invested as much as $200 million in equity, stands to lose all of that.

It isn't as if the buyers in this deal were going to build new buildings, or add new housing capacity to NYC on this huge (80 acre) piece of land.  They hoped to make minor improvements in very well-located older mid-rise buildings, and collect much higher rent from new up-market tenants than they could collect from the existing middle-class tenants they planned to force out.

NYC's failure to collect any significant share of the rental value of the land in the form of a tax on land value contributed to the perceived opportunities for Singapore, the Church of England, California and Florida public employees and others to reap the benefit from the economic activity of the NY area and the investments made by NY's taxpayers (whose sales are taxed and whose wages are taxed, even if they only work in NYC) and subsidies given by the federal government (e.g., transportation systems).  (Do you see any irony in it being the California and Florida pension funds which sought to collect a windfall on NYC rent, when those two states have provisions which suppress property taxes and thereby create windfalls for their landholders?  I refer to Proposition 13 and "Save Our Homes.")

If NYC wised up, and placed more of its tax burden on its land value, there wouldn't have been the hope for ongoing windfalls for private investors.

There would, likely, also be a lot more housing available to meet the needs of middle class and other folks, because taxing land value nudges the owners of underused land to reconsider, and put their land to better use.  No parking lots where a high-rise could be.  No urban gardens where a mid-rise could be.   No rubble-strewn lots where townhouses could be.  No "taxpayers" where a building that meets current needs could be.

Remember Leona Helmsley's famous statement?  "WE don't pay taxes.  The little people pay taxes."  She wasn't describing tax evasion; she was describing how we structure ourselves.

If NYC placed more of its taxation on land value, the big real estate operators WOULD be paying their share of the costs of providing the services which make NYC NYC, and there wouldn't be windfalls for CALPERS, Singapore or the Church of England, or the next generation of Leona Helmsleys.  There wouldn't be land speculation.  There would be a more stable and vital economy, in which all of us could prosper.

But obviously, the powers-that-be prefer the status quo -- the system which has funneled 71.8% of America's net worth into the portfolios of 10% of us, leaving 13.5% for the middle class -- the second 10% of us -- and best wishes! to the other 80%.

And, given last week's Supreme Court decision on corporations being entitled to free speech, that 71.8% is going to drown out those who see things differently.

Ben Stein's Farewell to C. Lowell Harriss, professor of economics - Dec. 29, 2009

Farewell to C. Lowell Harriss, professor of economics - Dec. 29, 2009.

I finally got the time to sit down and read through some of the obituaries and tributes to Lowell Harriss, who died in late December (just after Paul Samuelson).  His name was one I grew up with; he was a younger and much respected colleague of my late Georgist grandfather, and participated in the Committee on Taxation, Resources and Economic Development in the 1970s, and, likely, beyond.

The tribute I'm reading right now is interesting in light of data I've reported here recently, and in light of yesterday's Supreme Court decision on corporate free speech.  The data I report has only been gathered in its current form since the 1980s, and I have no idea what the earlier data sources on the subject might have been.

The tribute comes from Ben Stein, who young people know from "Win Ben Stein's Money,"  and a film or two, and those who watch the nightly news sponsored by the pharmaceutical companies may recognize from Visine commercials.  He is the son of two economists, and writes for Fortune Magazine.  He was a student of Lowell's at Columbia University in the mid 1960s.  He wrote, in tribute to Lowell,

But when Professor Harriss started talking about how corporations manage their affairs, he said, "Now assume that the stockholders of the corporation, the owners and beneficiaries of the corporation, are all widows and orphans."

This was an eye-opener indeed. And it made total sense. Of course, except in the rarest of cases in those days, then, and even now, the biggest companies are owned by legions of pension funds, mutual funds, (now, also ETFs and index funds). They are not owned by the Rockefellers or the Astors, as Professor Harriss used to say. They are owned by our parents and by us. The corporations are the people every bit as much as the workers are the people.

This insight, seemingly rarely taught in today's universities, has enabled me to ask -- for example -- why we as a nation would be angry at the oil companies, when we as a nation and as families own the oil companies, when the oil companies employ our fellow Americans at a decent wage, and when the oil companies pay us Americans as savers and retirees oil company dividends. Why would we hate any company without understanding that -- generally speaking, definitely not always -- its managers are simply trying to do the best for the widows and orphans and retirees who own the company? The companies are not a cancer on the society: they are the society.

Let's look closely at that second paragraph in light of the Survey of Consumer Finances data (2007, the newest available).

The SCF doesn't report pension fund assets.*  Others do -- see Ed Wolff's work.  But it is widely understood that a small and diminishing portion of the workforce today has a defined benefit pension -- that which we think of as a pension.  Some of today's workers still have some pension assets, either from a current employer who is no longer contributing to the pension fund, or from a previous employer.

The SCF reports several relevant categories, all mutually exclusive, and then an aggregate called "EQUITY."  The individual categories which might include stock or mutual funds are STOCKS; the category NMMF -- non-money-market mutual funds -- which represents holdings of mutual funds (which includes bonds as well as equities) outside of retirement assets; and RETQLIQ represents total holdings of such retirement assets as IRAs, 401(k) accounts, and other similar individually controlled retirement funds, which likely includes stocks, bonds and mutual funds.   The SCF also reports an aggregate called EQUITY.  Here are the ownership rates, and the distribution of holdings for 2007:

Table 1: Ownership Rates (2007)
	Stocks		Mutual Funds		Retirement Assets		Equity
			[NMMF]		[RETQLIQ]
Total:	17.9%		11.4%		52.6%		51.1%
Bottom 50%	7.2%		2.3%		33.6%		29.7%
Next 40%	22.7%		15.0%		68.3%		68.2%
Next 5%	43.7%		36.5%		83.3%		86.9%
Next 4%	59.5%		47.6%		85.3%		92.0%
Top 1%	65.4%		52.7%		87.8%		92.8%
Table 2: Share of Holdings (2007)
Total:	100.0%		100.0%		100.0%		100.0%
Bottom 50%	0.6%		0.4%		3.8%		1.5%
Next 40%	9.0%		11.6%		36.7%		19.6%
Next 5%	8.0%		10.3%		16.9%		12.4%
Next 4%	30.5%		30.9%		28.0%		30.5%
Top 1%	51.9%		46.7%		14.5%		36.0%

So while it might have been true that the young people sitting in Lowell's classes were likely to be beneficiaries of the corporations as shareholders, I think it is safe to say that the larger society was not, unless the distribution of stock holdings has concentrated even more precipitously than I suspect it has between 1964 and today.  The widows and orphans were far more likely to be in the bottom half of the wealth distribution, which, as of 2007 shared 1.5% of the EQUITY value.   

Today, it is clear that many corporations are not being managed even for the long-term benefit of their shareholders.  It is the top tier of employees whose interests are being served.

But perhaps one other piece of data ought to be considered: the distribution of the owners of holdings. This is the sort of figure which corporate advertising refers to when they talk about stock ownership being broad.  The "Total" line matches the first distribution; the others add to that total.

Table 3: Distribution of Holders of Assets (2007)
	Stocks		Mutual Funds		Retirement Assets		Equity
			[NMMF]		[RETQLIQ]
Total:	17.9%		11.4%		52.6%		51.1%
Bottom 50%	3.6%		1.2%		16.8%		14.9%
Next 40%	9.1%		6.0%		27.3%		27.3%
Next 5%	2.2%		1.8%		4.2%		4.3%
Next 4%	2.4%		1.9%		3.4%		3.7%
Top 1%	0.7%		0.5%		0.9%		0.9%

   

Do you feel better now?  The top 1% folks represent less than 2% of those who own EQUITY!  What's the big deal?  Look how many more of EQUITY owners are from the bottom 50%!  Isn't America wonderful?  Does Ben Stein's memory of Lowell's classroom statement sound right now?

One more table.  This one looks at the relative holdings across the holders in each wealth quantile.  It divides the dollar holdings for each group by the percentage in Table 3.  Data is comparable both across columns and up and down each column.

Table 4: Average Dollar Holdings per 1% of Households Who Hold
	Stocks		Mutual Funds		Retirement Assets		Equity
			[NMMF]		[RETQLIQ]
Average:	221		309		146		231
Bottom 50%	7		11		17		12
Next 40%	39		68		103		85
Next 5%	145		200		312		337
Next 4%	508		573		629		977
Top 1%	3,142		3,127		1,271		4,577

Notice what percentage of us are "below average."  Compare each figure to the average in its column.

Let me throw in one other set of figures:   The Table 4 data for BUS -- equity in privately held companies.  Average: 1,069.  Bottom 50%: 24   Next 40%: 137; Next 5%: 443; Next 4%: 1,507; Top 1%: 10,960.  (That's what the Astors and Rockefellers of today own.  And much of it is land value and the value of other natural resources, value which we permit them to privatize.)  We call much of it "small business" and permit the owners to style themselves as self-made successes.

To return to Ben Stein's questions:

This insight, seemingly rarely taught in today's universities, has enabled me to ask -- for example -- why we as a nation would be angry at the oil companies, when we as a nation and as families own the oil companies, when the oil companies employ our fellow Americans at a decent wage, and when the oil companies pay us Americans as savers and retirees oil company dividends. Why would we hate any company without understanding that -- generally speaking, definitely not always -- its managers are simply trying to do the best for the widows and orphans and retirees who own the company? The companies are not a cancer on the society: they are the society.

The nonrenewable natural resources belong to the people, not exclusively to those who extract them from the soil, or their shareholders, even if 100% of us were shareholders in name.  Until our system collects the royalties on those natural resources from those who we currently permit to privatize our COMMON asset, Stein is just plain wrong.  Fortune Magazine's subscribers may appreciate his assertions, but the rest of us ought to be very very skeptical.   

*  Postscript, 1/30/2010:

I came across some data about stock ownership which showed where pension funds fit in the picture, at least in the 1990s.  See Pension Fund Capitalism, by G. William Domhoff, at http://sociology.ucsc.edu/whorulesamerica/power/pension_fund_capitalism.html, Table 1, which shows that Corporate Pension Funds held 18% of Corporate Stock, and Public Pension Funds held 8% in 1994, compared to Households, which held 48% and Mutual Funds which held 12%.  He sources the data to Margaret M. Blair, Ownership and Control, 1995)

Middle Class Wealth

One of my google alerts, for the words "wealth distribution," took me to a blog post about the tragedy which has occurred in Haiti, which referred to America being different because it had a large middle class.  Since I'd recently posted on this blog some new data about the distribution of wealth, I took a look at that data with the "middle class" in mind.

Here's the data on the distribution of Net Worth, copied from the post below:

	Top 1%:		34.6%
	Next 4%:		26.4%		Top 5%:		61.0%
	Next 5%:		10.8%		Top 10%:		71.8%
	Next 10%:		13.3%		Top 20%:		85.1%
	Next 30%:		12.4%		Top 50%:		97.5%
	Bottom 50%:		2.5%

Do we define as "middle class" the people who hold the middle third of our wealth?  That's the 9% of us who hold 37.2% of our wealth.   Those below that cutoff must be "lower middle class" or "poor."

Do we define as "middle class" the people between the 50th and 80th percentiles of the wealth distribution?  That 30% has a mere 12.4% of our wealth.  The 50% below them only have 2.5% of the net worth.

Do we define as "middle class" the people between the 50th and 90th percentiles? They hold 25.7% of the wealth.

If America's strength is its broad middle class, they certainly aren't reaping much of a reward.  The Chartbook for the Survey of Consumer Finances, page 42, shows this:

Median Value of Net Worth for Families with Holdings, 1989, 1998 and 2007, by Income Quantile in thousands of 2007 dollars: Income Quantile: 1989 1998 2007 1989 to 2007 Bottom Quintile (20%) 2.9 7.4 8.1 +5.2 Second Quintile (20%) 38.8 42.2 38.1 -0.7 Middle Quintile (20%) 67.1 68.0 88.1 +21.0 Fourth Quintile (20%) 107.0 143.0 205.8 +98.8    Second Decile (10%) 211.2 240.0 356.2 +155.0    Top Decile (10%) 625.4 575.9 1,119.0 +493.6

From the following chart in the Chartbook, Mean Value of Net Worth for Families With Holdings, I calculate the following shares of Net Worth:

Share of Holdings, 1989, 1998 and 2007 -- by Income Quantile
Income Quantile:			1989		1998		2007		1989 to 2007
Bottom Quintile	(20%)		2.65%		3.38%		3.77%		+ 1.12 percentage points
Second Quintile	(20%)		7.07%		6.80%		4.84%		- 2.23 percentage points
Middle Quintile	(20%)		10.90%		8.94%		7.54%		- 3.36 percentage points
Fourth Quintile	(20%)		14.64%		14.59%		13.48%		- 1.16 percentage points
Second Decile	(10%)		11.96%		11.53%		10.92%		- 1.04 percentage points
Top Decile	(10%)		52.78%		54.76%		59.45%		+ 6.67 percentage points

   

By this standard, who is our middle class? 

• The 20% of us between the 40th and 60th percentiles, who have  7.54% of the net worth? 
• The 60% of us between the 20th and 80th percentiles, who have 25.86% of the net worth?   
• The 70% of us between the 20th and 90th percentiles, who have 36.78% of the net worth?
• The 50% of us between the 40th and 90th percentiles, who have 31.94% of the net worth?

The top 10% of us, sorted by income, have 59.45% of the net worth -- $6 out of every $10 of net worth in America!!

What does this suggest to you about how we might tax ourselves?

What does this suggest to you about who we might ask to support the aid to Haiti after its tragedy?  

What does this suggest to you about the notion that the strength of America is its large healthy middle class?

What does this suggest to you about the notion that our taxes ought to be based on income?

Does it put Leona Helmsley's comment -- "WE don't pay taxes.  The little people pay taxes." -- in a different light?

A caution about the data: This post shows two different distributions of net worth: according to net worth in the first part, and according to income in the second part.  Don't confuse them -- it is easy to do.  But all the data is based ultimately on the Federal Reserve Board's Survey of Consumer Finances, and I've never heard anyone claim that the SCF overstates the concentration of wealth.    If you need help differentiating, post a question, and I'll try to help.

I hate to disagree with Chip Case, but I must

1732_952_LLA100103.pdf (application/pdf Object).  "Housing, Land and the Economic Crisis" and it appears in "Land Lines." 

The Lincoln Institute of Land Policy, an organization founded back in the 1940s by an industrialist enthusiastic about the ideas of Henry George, who intended that his wealth be used to promote those ideas, publishes a newsletter, the link to which arrived in my inbox last week.  One of the articles was by Chip Case, recently retired from Wellesley, and half of Case-Shiller.  The article is titled, "Housing, Land and the Economic Crisis" and it appears in "Land Lines." 

What I take issue with is this statement:

The expansionary monetary policy pursued during this short period reduced the cost of buying a home by almost a third.

It might be correct to say that monetary policy reduced the cost of borrowing a particular amount of money by almost a third, and I suspect that is what Chip meant to say.    But the reality is that instead of a potential buyer being able to purchase a particular house for 1/3 less monthly outlay for mortgage costs, he was able to borrow 50% more for the same monthly outlay -- and indeed, if he wanted to buy that particular house, he was competing for it with other people who WOULD be willing to borrow 50% more, so he would have to.   And he needed to accept an adjustable rate mortgage, with all the downside that leads to.

This drove up the transaction prices, and produced the appearance of home equity against which a larger percentage of non-sellers were able to borrow.  The spending -- on credit -- has led to profits for retailers and manufacturers, and most certainly for bankers (and thus to greater concentration of our wealth and income) and, as it had to, to a bust of large magnitude and widespread pain.

Have we learned, or are we going to do this again?

The article is titled, "Housing, Land and the Economic Crisis" and it appears in "Land Lines."    But the word "land" appears only twice in the article:

1. second paragraph:  "Between 2000 and 2005, the value of residential land and buildings increased from about $14 trillion to $24 trillion. About half of this increase reflected new construction, and half was due to rising land values, primarily on the coasts (Case 2007). But in late 2006 prices began to decline, and by mid-2009 they had fallen roughly 30 percent.
2. antepenultimate paragraph (I knew I'd have a use for that word someday!):  "California represents about 25 percent of all the land value in the United States, and events there have major implications for the rest of the country. The good news is that for the last three months, the indexes for San Francisco, San Diego, and Los Angeles have led the nation in price appreciation. The California Association of Realtors reports substantial increases in home sales volumes except in the Central Valley.

I'm disappointed that neither Case nor Lincoln saw fit to connect the dots.

(And I'll note parenthetically that California and Florida's steeply rising land prices were in part due to their limitations on the property tax under Proposition 13 and "Save Our Homes" respectively.   Many of California's problems would get better if they would simply fund their public spending from a tax on their land value, rather than suppressing that tax and relying on taxes on sales and wages, both of which depress any economy.)

To connect the dots, I'll ask that you read Mason Gaffney: The Great Crash of 2008, at http://www.masongaffney.org/ and his new book, After the Crash: Designing a Depression-free Economy, available at http://www.schalkenbach.org/store.php?crn=78&rn=610&action=show_detail

Lenders ought not to be lending on speculative land values. Localities ought to be collecting more of the economic rent on the land within their borders, lowering the selling price of land without reducing its value in use -- and arguably increasing it!  Localities and states ought to be lowering their taxes on buildings, on wages, on sales, and substitute the revenue from collecting economic rent.  See also Mason Gaffney: How to Thaw Credit, Now and Forever, online at his website (above).

 

Wealth Concentration data

I stumbled across a bit of data on wealth concentration which I thought worth sharing.  Previously I've reported data from the 2007 Survey of Consumer Finances, which was published just about a year ago.  The data on Net Worth as reported shows top 1%, next 4%, next 5%, next 40% and bottom 50%:

Top 1%:		33.8%
Next 4%:		26.6%		Top 5%:		60.4%
Next 5%:		11.1%		Top 10%:		71.5%
Next 40%:		26.0%		Top 50%:		97.5%
Bottom 50%:		2.5%

Ed Wolff, of NYU, is quoted here as reporting this distribution of Net Worth for 2007:

• Top 1%:        34.6%
• Next 19%:     50.5%
• Bottom 80%:  15.0%

Since the source is a working paper not yet published online, I don't know the underlying data source, but I'm guessing that Wolff might be working with the SCF 2007 data and following up on the statement in Arthur Kennickell's Ponds & Streams, the Federal Reserve Board paper which published the 2007 SCF, that the wealth holdings of the Forbes 400 are omitted from the SCF data, and that Wolff is adding that data both to the top 1% and the aggregate to come up with these data. (If I'm wrong, I'd welcome correction!) If I'm correct, his 50.5% for the "next 19%" indicates that the distribution of Net Worth is roughly as follows:

• Top 1%:     34.6%
• Next 4%:    26.4%   Top 5%:    61.0%
• Next 5%:    10.8%    Top 10%:  71.8%
• Next 10%:   13.3%   Top 20%:  85.1%
• Next 30%:   12.4%   Top 50%:  97.5%
• Bottom 50%: 2.5%

Those figures include housing wealth.

The same table which reported that Net Worth data also reports Wolff's findings for Financial Wealth, which he defines as Net Worth minus the [gross] value of one's home:

• Top 1%:  42.7%
• Next 19%: 50.3%
• Bottom 80%: 7.0%

The same article reports some useful measurements of stock ownership -- that is, ownership of shares in publicly held companies, whether directly, through retirement accounts or mutual funds.

• Top       1% own 38.3% of the stocks
• Next    19% own 52.8% of the stocks
• Bottom 80% own  8.9% of the stocks

and

• 48.1% of us owned no stocks in 2007
• 51.9% of us owned some amount of stocks in 2007
• 17.5% of us owned stocks worth less than $10,000 in total
• 31.6% of us owned stocks worth more than $10,000

What do you conclude from this data? 

Do you conclude that the bottom 80% of us are simply shiftless folks who must not be working very hard, or stupid folks who don't work very well, or invest what little we save very well, or do you think there might be something else going on?  What is it that the bottom 80% of us lack?

Does it seem to you that if only we shift some more of our wealth to the top 1%, benefits will somehow begin to trickle down to the rest of us, perhaps in the form of job creation by wealthy benefactors?

Does it seem to you that increasing homeownership is (or was ever) the solution to these problems, or do you think we might need to dig deeper to find the root of the problem?

We have permitted a wealth-concentrating machine to be created, sustained and, within the adulthood of the boomer generation, strengthened.

Few understand this machine, but I submit that the first step to understanding it is to read a 130 year old bestseller.

Progress & Poverty begins with the questions "why, despite awesome technological progress which has the potential to wipe out poverty, do we still have poverty?" and "why is wealth so concentrated?"   It examines the standard answers to those questions (you'll recognize them all) and finds them wanting.  It then sets out to find a more satisfactory answer, and to examine its implications.  It proposes a remedy -- the remedy -- and explores what that remedy means for the individual and a society with America's ideals.

If you've never read Progress & Poverty or your acquaintance with it goes back a decade or two, take a look at it in light of these issues.  You can read a modern abridgment at http://progressandpoverty.org/, listen to it at http://hgchicago.org/audio/, or get more information at http://www.wealthandwant.com/George_P&P.html

Neoclassical economists are rich people's useful idiots.

I found a quote I particularly like in a blog comment at http://neweconomicperspectives.blogspot.com/2009/12/michael-hudson-responds-to-paul-krugman.html

"neoclassical economists are rich people's useful idiots."

Another commenter there added this:

Dr Mason Gaffney's The Corruption of Economics is useful reading in this general vein of the co-opting of modern economics.

The University of Chicago was founded with Rockefeller support. He who pays the piper calls the tune.

I think the root of a lot of our current economic problems can be found here.  Our prominent economists learned their economics from neoclassical textbooks and instructors and full professors who learned their economics from neoclassicals.  I suspect, too, that it is very difficult to teach what one doesn't know.   It is difficult to get tenure from neoclassical departments if you aren't hewing the line.   

I commend to your attention Mason Gaffney's newest book: After the Crash: Designing a Depression-Free Economy.  Unless, of course, you like booms and busts.  You can order it at http://www.schalkenbach.org/ or from Wiley.com.

Children in Poverty, Children in low-income families

As I listen to the discussions about the health care legislation, and the effort to write abortion coverage out of the plans, I am reminded of some data I came across recently.  It comes from a series of studies called "Overlooked and Undercounted" which are siblings to the Self-Sufficiency Standard studies I've posted about from time to time. 

Most people acknowledge that what the Census Bureau says about the Federal Poverty Guideline is true: it is merely a statistical measure, with no particular relevance to the cost of living anywhere in America, much less in the places where most people live.  Places with relatively low cost of living have higher official poverty rates, and places with relatively high cost of living often have lower, even negligible, official poverty rates.

The Self-Sufficiency Standard studies work with a highly reproducible and logical methodology to develop a bare-bones, no-frills, just-getting-by cost of living, in a lifestyle in which all of a family's most basic needs -- including the age-appropriate child-care which permits all the adults to be employed full time -- would be met, but with no room for savings, for debt repayment, for anything but a home-cooked meal, for gifts, or entertainment; with no provision for replacing the necessary clunker every few years.  The SSS studies provide this analysis for individual states, by county, for various configurations of families.   They are called SSS because they represent the cost of living without depending on anyone for free childcare, or meals, or other necessities. They take into account local tax structures, including tax credits, and are based on all meals prepared at home under the USDA low-cost food plan, which requires careful shopping and a fair amount of food preparation time and allows (October, 2009) about $2.06 per person per meal for a family with two school-age children.

In the least expensive counties in America, the SSS is about 170% of the Federal Poverty Guideline.  Relatively few people live in those counties; they're rural, with few jobs and few of the amenities that larger communities offer. 

Many more of us live in places where the SSS is 200%, or 300% or even 400% of the FPL.  And in the places where the SSS is high, there is still a need in the workplace for people to perform the tasks which aren't very well paid: janitor, child-care, retail, etc.  

The Overlooked and Undercounted studies quantify the number of households in a particular state whose income falls below the SSS in their particular county for their particular household configuration, and break out various demographics.

But I think the most important figure of all is one they have failed to provide: the percentage of America's children who are growing up in families with insufficient income to meet everyone's most simply defined needs.

I've calculated this figure for all the studies I could find.  Doing so required making a single assumption: the average number of children in a family with 4 or more children (3 or more in Connecticut).  I assumed 4.5 (3.5 in CT).

Here's what I found.  The percentage of children living in families with less income than the FPL and the local SSS for their configuration of family:

State	Census data year	Below FPG	Above FPG but Below SSS	Total Below SSS	Above FPG as pct of Below FPG
	(1)	(2)	(3)	(4)	(5)
Colorado	2000	9.8%	24.9%	34.5%	254%
Mississippi	2007	26.3%	17.5%	43.8%	67%
California	2007	15.0%	34.0%	49.4%	227%
Washington	2000	11.3%	22.6%	34.0%	200%
Connecticut	2000	9.0%	22.9%	32.0%	254%
Pennsylvania	2007	13.5%	21.7%	35.3%	161%
New Jersey	2005	9.7%	22.5%	31.5%	232%
Source: Overlooked and Undercounted Studies

The next question is, what percentage of the children below the SSS are in families with more children?

• Colorado: 13.4% of all children are in 4+ child families; but they represent 26.0% of children who live below the poverty line and 25.6% of children who live below the SSS.  36.9% of all children live in families with 3 or more children; they represent 54.8% of children who live below the SSS. Two thirds of Colorado children in 4+ child families live below the local SSS.  Even in married couple households, over half of children in 4+ child families live below their SSS level.
• Mississippi: 14.6% of all children are in 4+ child families; they represent 27.3% of those who live below poverty line and 24.1% of children who live below the SSS.  38.1% of all children are in 3+ child families; they represent 54.9% of children who live below the SSS and 52.7% of those who live below the SSS.   Even in married couple households, over half of children in 4+ child families live below their SSS level. 
• California: 16.9% of all children are in 4+child families; they represent 33.1% of children in poverty and 26.9% of children below the SSS. Children in 3+ child families represent 42.1% of all children, but 63.3% of children below the FPG and 57.2% of children below the SSS.  Even among married couple households with 4+ children, 74.6% of children live below the SSS.
• Washington: 14.7% of children are in 4+ child families; they represent 30.2% of children below FPG and 27.1% of children below the SSS.
• Connecticut: 37.1% of children are in 3+ child families; they represent 53.4% of children below FPG.  Even in married couple households, 35% live below the SSS level.
• Pennsylvania: 14.7% of children are in 4+ child families; they represent 30.4% of children below FPG, 29.1% of children between FPG and SSS, and 29.6% of children under the SSS level.  25.2% of children in married-couple families live below the FPG; in the 4+ child category, they are 33.8%.
• New Jersey: only 10.9% of children are in 4+ child families; they represent 22.7% of those below FPG, 20.9% of those between FPG and SSS, and 21.9% of those below SSS.

So we are going to take away the possibility of employer-provided health insurance which provides abortion coverage to women who want it?  

Do we really mean to promote policies which make it difficult for American couples to control how many children they bring into the world?   Birth control isn't 100% reliable, and despite all best efforts, even married couples often can simply not afford another child.

Here are the statistics, straight from the O&O studies: The percentage of families (not of children) with incomes below their local SSS:

The Percentage of Families with Various Numbers of Children Whose Incomes Fall Below Their Local Self-Sufficiency Standard Level
	1-child families	2-child families	3-child families	4+ child families	all families w/children	childless families
1. Colorado	22%	26%	43%	66%	29%	14%
2. Mississippi	32%	34%	53%	72%	39%	25%
3. California	34%	38%	60%	79%	43%	20%
4. Washington	22%	26%	41%	63%	29%	15%
5. Connecticut	21%	25%	46% (3+ children)		27%	12%
6. Pennsylvania	21%	26%	43%	71%	29%	15%
7. New Jersey	22%	24%	39%	63%	27%	14%
range:	21% -  34%	24% -  38%	39% - 60%	63% -  79%	27% -  43%	12% -  25%
Source: Overlooked and Undercounted studies

These seven states are widely dispersed geographically, and together represent a significant share of US population.  I'm guessing their data is fairly representative of the US as a whole.

Children in larger families are significantly more likely to live in situations without sufficient income to meet their most modestly defined needs. Should we promote policies which lead to more children?

Shouldn't we be looking for the underlying cause of insufficient wages?  They aren't inevitable.

And those who have explored this blog will probably know that the underlying cause is a structural one, not an individual one.  Or has your town figured out how to get along without school bus drivers, janitors, retail or child care workers, to name just a few categories of low-paid workers we rely on.  Are they entitled to have children, to have a life, or are you willing to support policies which ensure that their children will be brought up under straightened circumstances?  (I'd always thought that was spelled "straitened" -- as in "dire straits," but just discovered I was wrong.)

First-time homebuyers as sharecroppers

I came across an interesting table in a November, 2007, Federal Reserve Board Study entitled "First-Time Home Buyers and Residential Investment Volatility" by Jonas Fisher and Martin Gervais, and another version from "Why Has Homeownership Fallen Among the Young?" (FRB, March, 2009), by the same authors.

While median income (in real dollars) has fallen, the ratio of median house price to median income has nearly doubled, down payments at the median are down by over 1/3, and, perhaps most important, the proportion of after-tax income going to mortgage payments has nearly doubled, to 40%.  Consider also that in 1976, most mortgages were fixed rate instruments, while by 2005, a very high percentage were adjustable rate mortgages, whose interest rate could rise by 2% at the end of the first year, raising that proportion higher in the second year.

And then, of course, in addition to paying 40% of after-tax income to the mortgage lender, our young people must also pay taxes: payroll taxes, wage taxes, sales taxes, taxes on their house and the land on which it sits.  Those who have read this blog for a while will know that placing the largest share of our tax burden onto land value would have many desirable effects, including reducing the selling price of land to a nominal amount.  Instead of borrowing from a mortgage lender a large sum to pay the seller for land value the seller didn't create, we'd pay land rent to our community, which would keep some of it for local purposes, and pass some up to the state and the federal government -- revenue which would replace some or all of the state sales and income taxes, and the federal income taxes. 

And that 40% is mostly interest, not principle payment.  Depending on the interest rate, in the first year of a mortgage, one pays 70% (at 4%), 78% (at 5%), 83% (at 6%), 88% (at 7%) 91% (at 8%) of one's mortgage payment as interest, and only 30% to 9% to pay down principle.  The fact that, for some, mortgage interest isn't taxed, should be little consolation.  (Why "for some"?  Because for many families, the standard deduction is a better deal than itemizing deductions.  Most homebuyers don't realize that, and assume they'll benefit as homeowners.)

Yet another FRB study, from May, 2006, showed that in the top 46 metro areas, on average, land value represented 51% of the value of single-family residential property.  In San Francisco metro, the figure was about 88%; in NYC and Boston metros, it was well over 70%.   Oklahoma City was the lowest, in the 20's range.

Homesellers reap gains they didn't sow.  Mortgage lenders get to pocket large shares of young people's wages.  There has to be a better way.  Longtime readers will know what it is: shift our taxes onto land value, and off productive activity. 

Table 2: Characteristics of First Time House Buyers Statistic 1976 1986 1996 2005 Median Real Income $35,972 $35,481 $33,151 $30,281 Median Price/Median Income 1.5 1.9 2.5 2.8 Mean Down-payment/Price .18 .13 .12 .11 Mean Monthly Payment/After-Tax Income .23 .30 .35 .40 Notes: The table entries are from various issues of The Guarantor, 1978-1998, the 2005 National Association of Realtors Profile of Home Buyers and Sellers, and 2005 American Housing Survey. The Real median income is based on the CPI. Mean Monthly Payment/After-Tax Income before 2005 is from The The Guarantor. In 2005 we made an assumption about the average tax rate, .25, to calculate this variable. From "Why Has Homeownership Fallen Among the Young?" Table 3: Characteristics of First-Time House Buyers Statistic 1976-80 1981-90 1991-99 Median Price/Median Income 2.0 2.1 2.4 Mean Down-payment/Price .18 .16 .14 Mean Monthly Payment/After-Tax Income .29 .34 .35 Source: Various issues of The Guarantor, 1978-1999.

The Landed Gentry ... this time, in Pakistan

but Pakistan is just an example.  A standing google alert brought an article at http://www.defence.pk/forums/national-political-issues/31924-who-rules-pakistan.html which includes this paragraph:

The democracy in Pakistan is fledgling at best. There are powerful vested interests such as the landed aristocracy. A vast majority of the members of the Assemblies are landed gentry; they do not pass any legislation that hurts big landlords, nor do they allow any taxes on themselves. Then there is the military; the government survives at the mercy of the army chief.

What is so special about the landed gentry?  Here's what Henry George said:

It is a well-provisioned ship, this on which we sail through space. If the bread and beef above decks seem to grow scarce, we but open a hatch and there is a new supply, of which before we never dreamed. And very great command over the services of others comes to those who as the hatches are opened are permitted to say, "This is mine!"

and

What largely keeps men from realizing the robbery involved in private property in land is that in the most striking cases the robbery is not of individuals, but of the community. For, as I have before explained, it is impossible for rent in the economic sense — that value which attaches to land by reason of social growth and improvement — to go to the user. It can go only to the owner or to the community. Thus those who pay enormous rents for the use of land in such centers as London or New York are not individually injured. Individually they get a return for what they pay, and must feel that they have no better right to the use of such peculiarly advantageous localities without paying for it than have thousands of others. And so, not thinking or not caring for the interests of the community, they make no objection to the system.

It recently came to light in New York that a man having no title whatever had been for years collecting rents on a piece of land that the growth of the city had made very valuable. Those who paid these rents had never stopped to ask whether he had any right to them. They felt that they had no right to land that so many others would like to have, without paying for it, and did not think of, or did not care for, the rights of all. .

See also http://www.wealthandwant.com/themes/underpop/landed_gentry.htm and http://www.wealthandwant.com/themes/underpop/landlordism.htm

Nothing particularly special about Pakistan in this regard.  But perhaps it might lead us to think about America's most landed gentry, and the windfall we grant them, at the expense of the commons and the ordinary working person.

Follow the Money: A Close Look at Recent Southern California Foreclosures

31 page PDF at http://www.areuea.org/conferences/papers/download.phtml?id=2133

A May, 2009, paper by Michael LaCour-Little, Eric Rosenblatt and Vincent Yao entitled "Follow the Money: A Close Look at Recent Southern California Foreclosures" provides some interesting data about single-family residential real estate in one part of the US.

Briefly, the paper looks at loans in five southern California counties which went into foreclosure in November in 2006, 2007 and 2008.  It traces the collateral and loans from purchase to foreclosure, and provides some useful findings.  Here's their abstract:

Abstract

The conventional wisdom is that households unfortunate enough to have purchased at the top of the market during the recent housing bubble are those most at risk of default due to recent price declines, upward re-sets of adjustable rate mortgage instruments, the economic downturn, and other factors. Here we use public record data to study three cohorts of Southern California borrowers facing foreclosure in 2006, 2007, and 2008. We estimate property values as of the date of the scheduled foreclosure sale with the automated valuation model of a major financial institution and then track sales prices for those properties that actually sold, either at auction or later as REO. We find that borrowers did not, in general, buy at the top of the market and virtually all had taken large amounts of equity out of the property through refinancing and/or junior lien borrowing. Given sales prices of collateral thus far, aggregate losses to lenders will reach almost $1.0 billion dollars compared to almost $2.0 billion dollars of equity previously extracted by property owners.

They do for mortgage foreclosures what Elizabeth Warren (et al)'s, study did for understanding the role which uninsured medical expenses play in personal bankruptcy filings.  California may be a more extreme case, for reasons which relate to the perverse incentives involved in the 1978 Proposition 13 property tax limitations.  But my interest is not the same as what the authors were driving after.

I took their data and created a small spreadsheet to look at the data from a different point of view.

Their sample is composed of 4,258 properties which went into foreclosure in Novembers of 2006, 2007 and 2008.  On average, the properties in each of the three cohorts had been purchased in 2002, and for an average price of $356,200.  By November 2006, the properties which went into foreclosure that month had an average value of $519,000 (as calculated by a commercial proprietary Automatic Valuation Model).   I made the assumption that the properties which were foreclosed on in November 2007 and November 2008 had the same AVM valuations in November 2006.

My calculations proceed as follows: I compare the average 2002 purchase price of $356,200 (a weighted average of the three cohorts) with the 2006 AVM valuation of $519,000, which provides a 4-year appreciation of $162,800 per property.  Assuming that each homeowner's annual property taxes started at 1.25% of their 2002 purchase price, and rose by the Prop 13 maximum of 2% per year, they each paid, on average, $19,578 in property taxes over 4 years. 

Houses don't appreciate.  They depreciate at about 1.5% per year. They're never worth more than what it would take to reproduce them. Taking 65% as an estimate of the share of the value of single family homes in southern California which can be attributed to land (1998 was 64.9% and 2004 was 78.7% in Los Angeles, according to Davis & Palumbo, May, 2006), 65% of the 2002 purchase price of $356,200 is $231,535.  Let's assume that the house doesn't depreciate at all, to account for owner-made improvements.  Land value, then, rose from $231,535 on average in 2002 to $394,300 by 2006.

So what produced that rise in land prices? 

• Some of it has to be attributed to the increase in population during that period of time -- due to fertility, improved public health, immigration from other countries and other states.  New relationships and broken relationships both contribute to the demand for housing. Since the quantity of land is fixed, land prices tend to rise with population.
• Some of it has to be attributed to relaxed lending standards, which permitted more people to borrow more money
• Some of it has to be attributed to changes in interest rates, which permitted more borrowing for the same monthly payment.
• Some of it has to be attributed to Proposition 13, which limited property taxes to 1.0% (in practice, roughly 1.25%) of the original purchase price, with an annual increase capped at 2%.  The annual rental value of land is generally 5% of the purchase value, so the 3.75% to 4% difference gets capitalized into the selling price of the land.

But let's think, too, of why people were willing to pay more to live in these five counties.  It was due to the schools, to jobs, to the roads, the sewers, the water system, the police and other emergency services, buses and trains, airports, the courts, jails and prisons, the universities, the hospitals and libraries, and public health and a myriad of other publicly provided goods.  The homeowners as homeowners paid only about $20,000 in taxes, and received, if the AVM is correct and they sold in 2006, $162,800 in appreciation on their land. 

The study shows that those who were in the 2006 foreclosure cohort had total average housing-related debt by November, 2006, of $469,000, up from the original loans of about $334,400.  So they'd taken out an average of $134,600 by borrowing against their home equity.

Did the services which contributed to raising that land value by over $160,000 over 4 years really only cost $20,000 per property?  No.  Sales taxes, and wage taxes and other taxes also financed those services.  And they were paid not just by landholders -- the roughly half of southern California residents who own their own homes -- but also by the other half, who rent their homes from others.

So homeowners reaped a huge windfall, and those who were not homeowners ended up financing it.  And as we attempted to increase the homeownership rate by a few percent by relaxed lending standards, they got to pay another time.

Most people think there is no viable alternative.  They're so used to the current structure -- and in California, Proposition 13 is sometimes referred to as the "Third Rail" of California politics" (touch it, and you die!) that few stop to consider that our taxes are at the root of our most serious problems.

So what's the alternative?  Sanity would be for all those public goods whose effect is to support and increase property values to be financed by a tax on land value.  Justice -- ditto.  Efficiency -- ditto.

California is floundering because it can't fund its spending.  And yet these 4,258 households stood to collect from buyers, if they sold in 2006 after buying in 2002, an aggregate windfall of $693 million: I've aggregated the data for these November foreclosures and here's the story.

Total Households:	4,258
Aggregate purchase price, approx 2002:	$1,516,735,000
Aggregate down payment:	$263,551,350
Aggregate value in 2006:	$2,209,902,000
Aggregate appreciation 2002 to 2006:	$693,167,000
Aggregate 4-year appreciation as percent of down payment	263%
Aggregate real estate taxes paid (@1.25% of purchase price, rising by 2% annually)	$78,142,339
Aggregate appreciation as percent of property taxes paid	887%

Folks who think they and people like them stand to reap a gain of $700 million on an investment of $264 million in 4 years, while paying just $78 million in property taxes may not consider it to be in their best interests to shift taxes off wages, off buildings, off sales.

Had Proposition 13 not been in place, and property owners paid just 1.25% of their properties' market value each year, aggregate property tax would have been $97,500,000, or about 25% more (assuming straight-line increase from 2002 purchase to 2006 average value of $519,000).  Still a tiny fraction of the appreciation.

The study's sample was only the November foreclosures.  To approximate the figures for all the foreclosed properties in the five counties in those 3 years, one might multiply by 12.  And recall that foreclosures are still a tiny fraction of all single-family residential properties in these five counties, and that these are relatively newly purchased properties.  Think of how much could be collected in the form of a tax on land value if everyone, no matter what year they bought their property, paid at the same millage rate on their true market value, instead of some paying on values based in the 1970s.

We-the-people created that appreciation.  Should homeowners and other landholders get to keep it as if they created it?  Does the answer to that question hinge on whether the homeownership rate is 30%, or 50%, or 65%, or 75% in that particular place, or in our country as a whole?  Or is the homeownership statistic irrelevant to the justice or logic of this privatization?  (Remember that residential real estate is frequently NOT the biggest piece of this: the urban real estate owned by corporations, REITs, foreign investors including airlines and sovereign funds, pension funds, philanthropies, 150-year trusts, private equity funds and other private entities, appreciates far faster.  (Remember Leona Helmsley's description: we don't pay taxes; the little people pay taxes.)

On the other hand, when one takes into account the fact that the run-up in prices this situation has led to a situation in which all these people have been foreclosed on, a large and rising proportion of mortgages are "under water" and observers are saying that the "bust" portion of this boom-bust cycle is going to leave something like 50% of mortgage holders "under water" by 2011, perhaps one might reach the conclusion that even if one is not convinced of the justice of revising our system, one might choose it strictly on the basis of avoiding boom-bust cycles being wise.

So is the Woodstock Generation going to fix America's most serious problems?

I was a rising senior in high school when Woodstock took place. A fellow waitress in the local deli in which I worked -- Max for Snacks, in King of Prussia, PA -- took off for Woodstock, and the rest of us dreamed of doing so. 

We thought we could change the world.  Many had a vision of a society in which all could prosper, all could succeed.  We sang, we danced, we applauded, we protested.  Gradually we worked our way up.  We educated ourselves, we bought homes, we had children -- not always in that order -- and we became part of the establishment.  We bent the establishment, a bit, perhaps, to our advantage.

But we didn't correct the problems, and arguably, we let them grow worse.  We watched as the benefits of public investment -- local, muncipal, county, state, federal -- accrued not to all of us but to those who own our land and claim title to our natural resources.  We permitted corporations and individuals to lay claim to our common resources, we who grew up hearing about Jed Clampett being somehow entitled to the oil revenue, to the exclusion of the rest of us.

We're so used to the way this aspect of the world was handed to us that few of us think to question it.  And yet the privatization of the economic value of urban land and the privilege of collecting the revenue on non-renewable natural resources on which all of us are dependent together produce some of our most serious social, economic, environmental, poverty and justice problems.  Most wars are fought over these two things.

And until we come to recognize this, all we can do is put bandaids on those problems -- locally, nationally and globally.

These two things are what someone wisely referred to as "Natural Public Revenue" sources.  Yet we largely ignore them, and use taxes which set up perverse incentives -- and wonder why we can't seem to solve any of our biggest problems.

NRDC: Ranking States’ Oil Vulnerability and Solutions for Change

Ranking States’ Oil Vulnerability and Solutions for Change
http://www.nrdc.org/energy/states/files/states.pdf

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.

"END ALL TAXES - EXCEPT ONE"

In the new issue of the Atlantic, there is this very wise pair of paragraphs.  

"END ALL TAXES - EXCEPT ONE" by Reihan Salam, Fellow at the New American Foundation
[email protected]
 
"The property tax may be the most loathsome tax in America. During the 1970s, a number of activists - angry that their tax burdens were rising as their neighborhoods became more desirable - pushed to abolish it altogether. President Nixon proposed significantly reducing state property taxes by implementing a federal consumption tax that would fund public education across the country. But when this proved a lost cause, the masses sought instead to strictly limit annual property tax increases through a series of ballot initiatives. The result hasn't been pretty. Chronic revenue shortfalls have crippled local governments ever since, leading to heavier reliance on punishing state income and sales taxes.
 
What if the problem isn't the property tax at all but rather, well, all other taxes? In 1879, Henry George, a brilliant if slightly crankish autodidact, published Progress and Poverty, a scathing polemic that blamed all economic ills on the private ownership of land. A staunch believer in laissez-faire economics, George found it perverse that we tax productive activities like work and innovative investment while letting landowners grow rich simply because they scooped up property at the right time. In that spirit, George called for a "Single Tax" on the unimproved value of land. There's a certain compelling logic to the Single Tax that stands the test of time. When you tax income, aren't you punishing people for working hard? But when you tax an asset like land, you're simply encouraging the most valuable use of that land. In the years since George faded from the scene, a number of economists, from Milton Friedman to Paul Romer have found virtue in the Single Tax, not least because it creates the right incentives for government. Simply put, the better you govern, the more valuable the property. The more valuable the property, the more revenue you raise."

Bravo!  From Reihan Salam's pen to the eyes and ears of all who are trying to figure out how to get us out of our current tax and revenue mess.

And if you're curious about what others have said about land value taxation, google "quotable notables" and "quotable nobels" 

P.S. This is part of the cover story, entitled "The Ideas Issue: How to Fix the World"

Is California Over-Taxed?

An LTE in the San Bernardino Sun challenged the notion, promoted by the (real estate operator) governor, that California is overtaxed, with the following research:

We're not overtaxed

Posted: 06/06/2009 05:10:29 PM PDT

I recently spent some time on the Internet investigating the governor's claims that Californians are the most highly taxed state, or nearly so. I found as follows:

• California's property taxes under Proposition 13 are ranked in an Arizona study as 34th for residential property taxes and 41st for industrial property taxes under California's split-roll system.
• California's state and local sales taxes per capita are ranked 15th per $1,000 of personal income in a Wisconsin study.
• Our taxing of utilities ranks 12th per $1,000 of personal income in a Wisconsin study.
• California's personal income tax ranks seventh greatest among the states at $3.22 per $100.00 of personal income per capita.
• The state corporate income tax has a flat rate of 8.8 percent and is ranked sixth, but many corporations pay no taxes due to legal loopholes.
• Cigarette taxes of 87 cents per pack are ranked 30th among the states, less than the U.S. median of $1 per pack.
• Excise taxes on liquor ($3.30 per gallon) are ranked 19th among the states, less than the U.S. median of $3.75 per gallon.
• Excise taxes on beer (20 cents per gallon) are ranked 43rd among the states, considerably less than the U.S. median of 69 cents per gallon.
• The real estate transfer tax of $1.10 per $1,000 valuation is ranked 29th among the states.
• Gasoline tax of 35.3 cents per gallon is ranked third among the states, most of which has been diverted to the state's general fund for years, last raised in 1994.
• The recent increase of the state's vehicle license fee ("car tax") from .65 percent of the car's value to 1.15 percent raises the tax from 20th rank to about seventh, it appears, based on a Wisconsin study.

I concluded that Californians aren't overtaxed and that the governor's story is misleading.

This is evidence of the same old misleading and partisan tricks that cause us to be divided instead of illustrating a productive way for California to solve its problems.

GREGG FIGGINS
President, Hemet Unified School District Governing Board
Director, Region 18, California School Board Association

I posted this comment:

Not over taxed, just relying on the wrong ones.  Dense cities need infrastructure built and maintained, and are logical places for many other kinds of community investment -- in services such as education, emergency services, public health, etc.  This costs money, but it also results in higher land values.

But Prop 13 prohibited the logical taxation of land value.  To the extent that Prop 13 reduced taxation of houses and commercial buildings and other individually-funded improvements to land, it was a good thing.   But that good is vastly overshadowed by its prevention of the use of the most logical and just tax yet devised: the tax on land value.

Land value rises for reasons which have nothing to do with the activity or inactivity of the individual landholder, and everything to do with the health and vitality and investment of the community.  Every infrastructure project serves to increase land value.  Good schools increase land value.  Good jobs increase land value.  Prop 13 permits the landholder to privatize all but a tiny fraction of that public investment, and forces the community into taxing, often heavily, things which ought not to be taxed at all.

Tax land value heavily.  Not one acre will leave town.  Not one building lot will wither and die under the burden.  Not one square foot less will be "produced" -- the land is already there.  What WILL happen is that the well-located acres which are languishing underused will be put to better use.  This creates JOBS and businesses vying for your patronage and businesses vying for your labor, which drives wages upward -- the reverse of what we see now, where workers are competing for jobs, driving wages downward.

And lifting taxes off wages and off sales and even off corporate profits will have a whole other set of effects -- none of which are undesirable -- for the economy.

It isn't the amount of the total tax burden which is the problem.  Rather, the load is badly placed.  Rather than being put on the back of the horse, evenly loaded, it is put around his mouth and hung from his tail.  No wonder he is struggling under the load.

San Bernardino sticks in my mind because of a 2006 Federal Reserve Board Study which showed, for 46 major metro areas in the US, the percentage of the value of the single-family housing stock which was accounted for by land value.  For the aggregate of the 46 metros, the figure was 51% in 2004.  San Francisco was 88%, and, of all the other cities in California listed, San Bernardino was the lowest at 62%.  I'm guessing that they may not have experienced the horrendous run-up in housing prices that most of the rest of the state experienced, due in large part to Prop 13.  But they're still stuck with the miserable tax structure that Prop 13 forces them into.

And think of the impact on all the towns that have courted car dealerships for the sales tax revenue, now that the auto manufacturers are shutting down dealerships.

Getting By in Oregon: How Much Does It Take?

Getting By in Oregon: How Much Does It Take?

One of my standing Google Alerts brought me this item.  It is a paper, just published, showing how wages in Oregon compare to a barebones cost of living for families of various configurations.  It uses the Self-Sufficiency Standard methodology, which I respect.

Its first table shows the Federal Poverty Guideline for various configurations of family, and then, for each Oregon County, the median household income and the Self-Sufficiency Standard (SSS) necessary for each family configuration.  That is, the amount a family needs to meet its own most simply defined needs -- housing at the HUD Fair Market Rent; home-cooked food at the USDA Low-Cost Food Plan level (about $2 per person per meal); health care; transportation (a paid-off car for each adult); childcare suitable to the ages of the children, plus an allowance of 10% more for all other expenses, plus the taxes which would be due locally to net out to that income.  Table 1 shows how widely the median incomes and costs of living vary across Oregon.

In Baker County: 

• a single adult can live frugally but adequately on $15,927
• an adult with an infant and a preschooler needs $29,255
• two adults with an infant and a preschooler need $37,530
• the median household income is $38,524

In Washington County, a similar lifestyle costs more:

• a single adult can live frugally but adequately on $22,646
• an adult with an infant and a preschooler needs $58,915
• two adults with an infant and a preschooler need $67,074
• the median household income is $57,561

What You Get for... $465,000 - NYTimes.com

Property Values - What You Get for... $465,000 - NYTimes.com.

The three homes listed today are very different from each other:

• a 4 bedroom house in Shelburne Falls, MA, on 2 acres (built 1860);
• a 1 bedroom apartment in San Francisco (1921/1950); and
• a 4 bedroom house on 7 acres in Richmond, KY (unstated). 

Interestingly, the taxes on each are fairly similar: $4,853, $5,208 and $4,650.

What does one get for one's money?  It varies.  In the two small towns, a significant portion of the purchase price is likely to be for the structure, even with the large sites involved.  In San Francisco, the bulk of one's purchase money is not for the structure, which is both small and modest, but for the location -- the proximity to jobs, to transportation, to all the amenities -- both publicly and privately provided -- of city life.

• a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet 
• a 1 bedroom apartment in San Francisco  -- 641 square feet
• a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. 

Quick and dirty, these homes are each probably worth $100 per square foot.  The remainder of the value is locational value.

• a 4 bedroom house in Shelburne Falls, MA, on 2 acres -- 2,741 square feet -> $274,000 house and $181,000 land  (60/40)
  
• a 1 bedroom apartment in San Francisco  -- 641 square feet -> $64,000 house and $385,000 land (14/86)
• a 4 bedroom house on 7 acres in Richmond, KY -- 3,233 square feet. -> $323,000 house and $142,000 land  (69/31)

In the small towns, one is paying the seller mostly for value he (or a previous owner) created.  In cities, one is paying the seller mostly for value he didn't create.

In each situation, property taxes are, more or less, 1% of the asking price.  Assuming that the buyers put down 20% of the $465,000 ($93,000) and finance the remaining 80% ($372,000) with a mortgage at 6% for 30 years, they'll be paying $27,000 per year on the mortgage and $5,000 to their community in the first year.   85% of their carrying cost goes to the lender, 15% to the community.

Viewed another way, if we looked at this as if all the purchase money was borrowed, about 87% of the carrying cost goes to the lender and 13% to the community.   And of that 87%, only 17% is principle; 83% is interest.  That interest all leaves town.  It isn't available for meeting the needs of the community, or of the borrower's family. It doesn't get recycled locally.

And, on top of that, the buyer continues to pay taxes on both the land and the building, and on their purchases and on their wages and most of their other income.

Can you picture how it would be if, instead of paying taxes based on one's wages and purchases and the house one occupies, one's taxes were primarily a function of the value of the land one occupied?

• The buyer of the Shelburne Falls property would be paying on the basis of his $181,000 worth of land
• the buyer of the SF property would be paying based on his $385,000 of land; and
• the buyer of the Richmond property would be paying based on his $142,000 worth of land.

Why is that tiny plot in San Francisco worth so much more? 

1. taxpayer-provided Infrastructure and services: transportation, water, sewage, streetcleaning, emergency, public health, etc.
2. high paying jobs in a vibrant economy, including very specialized jobs
3. proximity to community, culture, etc.

Were we to based our taxes on land value, the seller of the tiny San Francisco apartment would receive, say, $64,000 for his structure.  And the buyer would not be taxed on that value by his community.  Rather, he would be taxed on the value of the land he bought, paying, say, 5% of that value in the form of a tax on his land value: 5% of $385,000 is $19,250 per year.  His mortgage payment on the $64,000 purchase would be $4,650 per year.  And he wouldn't owe any other taxes.

Wouldn't that be a more just system?  He pays San Francisco and California for the right to occupy that choice site.  They recycle those funds locally to provide the services and infrastructure which make that site worth ~$20,000 per year, and send some on to the federal government.

This leaves the mortgage lender out of the loop.  The homebuyer doesn't need to borrow $450,000; he only needs to borrow $64,000.  The other funds are available for more productive purposes: financing businesses.  Creating jobs.  Maybe financing cars or other purchases.

Thou shalt not suffer thyself or anybody else to be stolen from

"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 unto me."

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 end.

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?

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.

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. 

Land and Freedom

That was the name of a bi-monthly magazine published from 1926 to 1940, successor to The Single Tax Review.  I want to share its premise with you.  It turns out that it was expressed a bit differently from one issue to the next.  These come from the 1940 volumes.

WHAT LAND AND FREEDOM STANDS FOR

Taking the full rent of land for public purposes insures the fullest and best use of all land. In cities this would mean more homes and more places to do business and therefore lower rents. In rural communities it would mean the freedom of the farmer from land mortgages and would guarantee him full possession of his entire product at a small land rental to the government without the payment of any taxes. It would prevent the holding of mines idle for the purpose of monopoly and would immensely increase the production and therefore greatly lower the price of mine products.

Land can be used only by the employment of labor. Putting land to its fullest and best use would create an unlimited demand for labor. With an unlimited demand for labor, the job would seek the man, not the man seek the job, and labor would receive its full share of the product.

The freeing from taxation of all buildings, machinery, implements and improvements on land, all industry, thrift and enterprise, all wages, salaries, incomes and every product of labor and intellect, will encourage men to build and to produce, will reward them for their efforts to improve the land, to produce wealth and to render the services that the people need, instead of penalizing them for these efforts as taxation does now.

It will put an end to legalized robbery by the government which now pries into men's private affairs and exacts fines and penalties in the shape of tolls and taxes on every evidence of man's industry and thrift.

All labor and industry depend basically on land, and only in the measure that land is attainable can labor and industry be prosperous. The taking of the full Rent of Land for public purposes would put and keep all land forever in use to the fullest extent of the people's needs, and so would insure real and permanent prosperity for all.

Pretty short and sweet, isn't it?  It might look out of date in this computer age -- though I would argue that it is not, even and especially in our most dense and developed cities -- but if you don't see its importance in the developed world, can you see that for the other 80%, including many places where American lives are at stake and our dollars being spent, it has huge relevance?

And as a means of ending poverty for the billions who do not get to reap the harvest of their own labor, it is of prime importance.

From the March/April issue:

WHAT LAND AND FREEDOM STANDS FOR

We declare:

• That the earth is the birthright of all Mankind and that all have an equal and unalienable right to its use.
• That man's need for the land is expressed by the Rent of Land; that this Rent results from the presence and activities of the people; that it arises as the result of Natural Law, and that it therefore should be taken to defray public expenses.
• That as a result of permitting land owners to take for private purposes the Rent of Land it becomes necessary to impose the burdens of taxation on the products of labor and industry, which are the rightful property of individuals, and to which the government has no moral right.
• That the diversion of the Rent of Land into private pockets and away from public use is a violation of Natural Law, and that the evils arising out of our unjust economic system are the penalties that follow such violation, as effect follows cause.

We therefore demand:

That the full Rent of Land be collected by the government in place of all direct and indirect taxes, and that buildings, machinery, implements and improvements on land, all industry, thrift and enterprise, all wages, salaries and incomes, and every product of labor and intellect be entirely exempt from taxation.

ARGUMENT

Taking the full Rent of Land for public purposes would insure the fullest and best use of all land. Putting land to its fullest and best use would create an unlimited demand for labor. Thus the job would seek the man, not the man the job, and labor would receive its full share of the product.

The freeing from taxation of every product of labor would encourage men to build and to produce. It would put an end to legalized robbery by the government.

The public collection of the Rent of Land, by putting and keeping all land forever in use to the full extent of the people's needs, would insure real and permanent prosperity for all.

What is the point of sending stimulus money to a state which chooses not to tax its land value??

California is looking for stimulus money from the Federal taxpayer, or, perhaps more precisely, from the federal taxpayers' children.

Yet for the past 30 years, California law, created under 1978's Proposition 13"  has PROHIBITED the taxation of land value at a rate higher than 1% of assessed value, and, in addition, limits the annual increase in assessed value to 2%, even when and where market values rise by 10% or 20% or more, until the property is resold, which results in both a very low and a very uneven taxation of land value.

This forces California into using taxes which both burden the poor and damage their economy: sales taxes, wage taxes.

It also strangles any effort to collect back for the commons that which our common spending creates.  4 shares for the landholder, 1 share for the community ... or , if you've owned your California property for 10 or 20 years, 9 shares for the landholder and 1 share for the community.

Meanwhile, California has one of the lowest homeownership rates in the entire US.  For 1Q 2009, the US homeownership rate was 67.3% (down from a peak of 69.1% four years earlier); California's was 56.8%, down from 59.9% 1Q2005.  So nearly half of Californians are paying rent, and paying it to landlords who pass only a tiny fraction of it on to the community in the form of taxes -- leaving the tenants to pay sales and wage taxes.  Perverse, cruel, dumb, privilege-maintaining.

The classical economists observed hundreds of years ago that all benefits go to the landlord.  Landlords grow rich in their sleep.  Land rises in value for reasons which have nothing to do with the activity or inactivity of the individual landholder, and everything to do with the presence of the community, the public spending of the community on infrastructure and services.  California's voters -- knowingly or unknowingly, but most likely the latter -- said that that was just fine with them, and the young people and the renters be damned!

Please don't come asking the rest of us to tax our wages to fund your "stimulus" when you won't tax your own landholders more than 1% -- and many of them a tiny fraction of 1% -- to meet your own state's needs. 

If your current governor, who benefits mightily from Proposition 13, won't lead you in the right direction, elect someone who will.

1 in 5 Pennsylvania Families Lack Sufficient Income to Meet Their Most Modestly Defined Needs

That's the finding of a study published this week by PathWays.  (Story here.)  It uses the methodology of the Self-Sufficiency Standard Studies, which calculate, for various configurations of families, a localized cost of living, by county, one state at a time.  The 2008 Self-Sufficiency Standard Study for PA is available online at http://pathwayspa.org/Self_Sufficiency_Standard.pdf, and I commend it to your attention.

Initially, this was done for families of working age, and to date, studies have been done in about 35 states.  More recently, a similar study was done to determine the cost of living in retirement in various places in Pennsylvania; that study is Elder Economic Security Standard. It looks a several different living situations: in a rented home, in a home whose mortgage has been paid off, for a single elderly person and a married couple.

The new study, entitled Overlooked and Undercounted, calculates how many people live in families whose incomes are below the SSS level; that is, where there is not enough to meet all the most simply defined needs: safe housing; childcare for young children while all parents work; homemade food at the USDA Low-Cost Food Plan level, transportation, health care, plus an allowance of 10% of the subtotal of those first 5 categories for "all other" spending, plus a calculation of the taxes that would need to be paid to NET that level of income after the local combination of taxes due from a renter would be paid.  That is the Self Sufficiency Standard.  It is quite a bit higher than the Federal Poverty Guideline in most large cities;  and even in America's lowest-cost-of-living counties, is somewhat above the FPG (which, for 2009, is $18,310 for a family of three and $22,050 for a family of four.  ("Self-Sufficiency" means not depending on subsidies or help from relatives with childcare.)

The most striking table to me is Table 7, on page 15, and it is striking both for what it says, and for the calculation they failed to provide.  Table 8 provides useful detail.

• As noted in the headline, 21% of PA's working-age families live below the SSS for their family configuration in their county.
• Among families with no children, only 15% live below their SSS.
• Among families with children (who represent 41% of families), 29% live below their local SSS.
• Among families with 1 child, 21% live below their SSS
• Among families with 2 children, 26%
• Among families with 3 children, 43%
• Among families with 4 or more children, 71% live below their local SSS.
• Among families whose youngest child is less than 6 years old, 40% live below the SSS
• Among families whose youngest child is 6 to 17, 21% live below the SSS.

So among families without children, only 1 in 6 lack sufficient income to meet their most simply defined needs. (In America!!)  That proportion doubles to nearly 3 in 10 among families with a child.

What they failed to calculate was what percentage of PA's children live below the SSS. I made one assumption: that among families with 4 or more children, the average number of children was 4.5.   I have no way of testing its validity.  But if you accept that assumption, here's what we find:

• 918,273 children in PA live below the SSS in their county for their particular configuration of family
• That's 35.3% of Pennsylvania's 2,603,590 children.

Table 8 breaks out similar data by whether the household is headed by a married couple, a male or a female householder with no spouse present. Working the same methodology (assuming 4.5 children per household where the table says "4 or more"), I find

• a total of 925,914 children living below local SSS. 
• 50.5% of them are in two-parent households.

When you see a child in PA who comes from a family of 4 or more children, chances are that they live below the SSS.
When you see a child in PA who comes from a family headed by a female householder, no spouse present, changes are that they live below the SSS.
When you see a child in PA, the chances are over 1 in 3 that he lives in a family whose income is below the SSS.

Now here's the question: which of these statistics will you remember most? 
Followed closely by "what do we need to change?"

If your answer is "fewer single mothers" or "fewer single parents" or "fewer divorces" or even "more availability of birth control" then evidently you are willing to accept that, among married-couple households with 2 children, our wage structure is acceptable when 17% of those families lack sufficient income to meet their most simply defined needs.

GO TO THE ROOT OF THE PROBLEM.  Discover the problem and eradicate it.   I'm persuaded that the problem is structural, not a failing of the individuals involved.  We need to look at why wages are not sufficient to support a family.

Oh, and if you think this is just Pennsylvania, think again.  The figures are similar for Colorado (34.5%) and for Connecticut (38%).  And in California, more than 48& of the children live in families with insufficient income.  (I'm willing to bet that much of this is a function of awesomely high rents in the populated portions of California.  And ultimately, that can be traced in significant part to distortions produced by Proposition 13.)

Spending more on schools is not going to fix this.  WE MUST GO TO THE ROOT of it.  Read Henry George's Progress and Poverty, and you will come away knowing what most people 120 years ago knew well. (That would be progress!)  And then act on it.  Act locally, act at the state level, act at the federal level to implement HG's simple and just reform. 

Book Review -- Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back

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 Wallace.

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 patents.

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:

• First, from 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 external forces.
• 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 unjust.

Georgists will find this book a treasure trove of arguments and quotations from scholars, obscure and famous, expressing views similar to those of George. For example,

• 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 medallions!

&&&&&&&&&&&&&&&&&

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 www.georgiststudies.org and www.dollarsandsense.org.

Yertle the Turtle, and Tax Reform

One of my heroes, Susan Pace Hamill, law professor at the University of Alabama, provides an interesting analogy for tax reform:

http://www.al.com/news/huntsvilletimes/local.ssf?/base/news/1241860572260150.xml

For tax reform, topple 'turtle stack'

By VICTORIA CUMBOW | Times Staff Writer [email protected] | Saturday, May 09, 2009

Prof finds 3 reasons most voters oppose altering state charter

A law professor is using a Dr. Seuss' "Yertle the Turtle" yarn as a metaphor to argue for an overhaul of Alabama's tax system.

Susan Pace Hamill, who teaches law at the University of Alabama, said the Seuss character wants to sit as high as possible, so he arranges a stack of turtles to sit on. The turtles near the bottom experience pain and suffering thanks to all the turtles sitting on their backs.

"The turtle stack can be compared to Alabama," Hamill said by phone before she spoke at a Madison County Democratic Women's dinner Thursday night.

After voters overwhelmingly rejected Gov. Bob Riley's tax reform plan in 2003, Hamill struggled to understand why. She said the plan would've eased the tax burden for at least half of state voters. She set out to find out exactly why the "plan failed miserably."

After years of listening to voters' stories and concerns, she said, she found three reasons:

1. Anytime someone is forced to decide on a change this drastic, there's a fear that things will get worse.

"When you don't trust that a change will help you," she said, "you will never back a change."

2. Many Alabamians do not want to take a stand against their ancestors' support for the 1901 constitution, Hamill said.

3. Her third finding dealt with alienating friends and family.

"It's very tight," she said of the bonds of friends and family. "If you break away ... and offend others in your network, you risk being cast out."

Her solution to those problems? Newcomers to the state.

"This is why the heaviest of the heavy lifting would have to be done by newer arrivals," she said, "by folks who have been here a while and committed to staying, but who are not disabled by these three problems."

© 2009 The Huntsville Times. All rights reserved.

When we structure ourselves so that some get fine views at the expense of their fellow human beings, we're doing something wrong.

He who sees the truth, let him proclaim it, without asking who is for it or who is against it. This is not radicalism in the bad sense which so many attach to the word. This is conservatism in the true sense.

-- Henry George, The Land Question

Forgive us our trespasses, as we forgive those who trespass against us ...

Does this mean that we ought to permit others to trespass against us in a systematic way, in exchange for forgiveness of our own trespasses against other individuals? 

Does it mean we ought not to act to end structural trespassing against the basic rights of others: the right to one's fair share of the world's natural resources, including access to land on which to labor?

I wonder how enslaved people viewed this prayer in 18th and 19th century America.

An Hour with the BBC World Service

20 years ago, one of the (many) pleasures of a visit to Bermuda was the opportunity to listen on ordinary radios to the BBC World Service. 

Even in the New York metro area, the only way we could listen at home was via shortwave radio.  And that involved keeping track of what time it was according to Greenwich Mean Time, and consulting a chart to determine on which, if any, frequency the BBC could be heard locally at that time of day.  I imagined English-speaking people all over the world listening via similar radios.

Now my local NPR affiliate carries the BBC during the night. And by day, I can listen to it on XM satellite radio at my desk and in my car.  Most of my listening is during the night; when I can't sleep, I put on headphones and listen.

As I listened for an hour this morning, I was led to wonder how many -- if any -- BBC reporters stationed around the world have encountered the ideas of Henry George, and how the experience would alter their reporting of so many stories.

So many of the stories of poverty, of strife, of terrorism are ultimately, at bottom, about access to land, access to natural resources, and how a people treats the natural resource revenues, including the revenue from urban land value.

Where all have access to land on an equal basis, by paying rent to the community, there need be no poverty or unemployment.  Where some claim as their own privilege the right to collect that rent for their own portfolios, there is poverty, and there are people -- often the vast majority -- robbed of their birthright.  They may not know the exact nature of the problem, but they clearly know that they're being wronged, day in and day out.  Some cope.  Some become terrorists.  Some figure suicide can't be any worse than what they're dealing with.

When natural resources revenues are used to fund government spending, to provide the infrastructure which makes a city a better place to live, and the excess refunded to the community in the form of individual Citizens' Dividends, life tends to be pretty good for most people.  When natural resources accrue to royalty, or to a plutocracy, or to foreign corporations' shareholders and management, and are not reinvested in the community, not surprisingly, we get human misery and inferior infrastructure and schools.

And it would seem quite rational for people living in such situations, particularly young men, to rebel against such a thing.  Not knowing precisely what the problem is, they do not seek to solve it, only to avenge their loss.

The BBC's website says this:

There is a relatively small number of things which BBC must not do. For example, it must not carry advertising, neither can it express its own editorial opinion about current affairs or matters of public policy, other than broadcasting. That is not to say, of course, that controversial programmes are never broadcast, but great care is taken to ensure that arguments are well balanced.

Balance!  Ah!  Let's balance the privileges of those who claim the world's natural resources as their own entitlement, with the birthright of all the people of each country to those natural resources.  We all learned in elementary school what each country and region of the world produces and exports.  What we didn't talk about was who in each country (or beyond its borders) is considered to be entitled to the natural resources revenue, or how public spending there would be financed when the natural revenue source was diverted into private pockets, or what the privatization of these resources does to a country's economy and wealth distribution.  That is political economy.

Report the news.  Don't talk about what underlays it.  Wouldn't want to rock that boat, would we?

Where do they do this?  Try Alaska, for starters.  Just a starter, but no state in the US has less income inequality -- despite their high cost of living.  

For a look at what happens when this is ignored, look for the upcoming film The End of Poverty? from Cinema Libre Studio. (It premiered at Cannes last year, and will be in theaters this fall.)

And to explore the ideas of Henry George, start with some of his speeches, at wealthandwant.com followed by his landmark best-selling book, Progress & Poverty.

How Should Connecticut Pay for Maintaining I-95, I-91, I-84 and the Parkways?

When I moved to Connecticut in 1975, the Connecticut Turnpike and the Merritt Parkway both had tollbooths.  Some years ago, after a terrible accident in which a dozing truckdriver rear-ended cars waiting to pay their toll at Stratford, killing passengers in at least one car, the toll booths were removed.

Now the state, like most others, is strapped for cash, and there are calls to again use tolls to help pay for the roads.  But there is a noisy constituency which resists tolls.

Connecticut has among the highest taxes on gasoline in the US, and also the highest pump prices.  According to  http://www.connecticutgasprices.com/tax_info.aspx, we pay 62.5¢/g [cents per gallon] on gasoline, and 61.4¢/g on diesel.  California's are the highest at 63.9 and 72.0¢/g (necessitated in part, I'm sure, by California's 30 year old Proposition 13 which keeps the property taxes of old-timers to a minute fraction of 1% of the property's market value).  Alaska's are the lowest, at 26.4 and 32.4¢/g.  (These include Federal excise taxes of 18.4¢/g for gasoline and 24.4¢/g for diesel.)

Here are the surrounding states:

	Gasoline tax per gallon (cents)	Diesel tax per gallon (cents)
Connecticut	62.5¢	61.4¢
Massachusetts	41.9	47.9
Rhode Island	49.4	55.4
New York	59.6	64.7
New Jersey	32.9	41.9
Pennsylvania	50.7	63.6
Vermont	38.4	50.4
New Hampshire	38.0	44.0

Why did I list so many states? Because 18-wheelers have large fuel tanks -- as much as 300 gallon capacity.  That gives them the option to fill them when prices are good, and avoid buying in states with high prices.   At 5 mpg, 300 gallons gives a 1,500 mile range.

Here are two tables from http://www.icpa.org/consumer_motor.htm showing Connecticut's prices compared to nearby states.  First gasoline:

The UK Rich List -- some additional thoughts -- with reference to America, as well

I spent some more time going through the 2000 or so entries on the UK "Rich List," which starts at http://business.timesonline.co.uk/tol/business/specials/rich_list/rich_list_search/.  (See the blog entry below for further comments.)

The top 25 entries, whose 2009 holdings range from £10,800m down to £1,400m, include 16 which came from

• oil
• steel
• property
• mines
• metals
• water
• diamonds and
• mining.

The combined value of the top 25 fortunes is £73.88 billion.  At 5% per year, that produces £3.7 billion in income -- quite a sizable amount to be shared among 25 families!  (£1,400m is $2.1 billion US; £3,700m is $5.6 billion US.)

Notice that each of these fortunes is fundamentally from natural resources.  Yes, there is capital involved, and labor.  But under the laws of most countries, natural resource holdings and extractions are taxed lightly if at all, and labor is taxed heavily.

The Rich List

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. 

I shouldn't be surprised how many of these fortunes come from land, from "property," from oil, minerals and other natural resources.  But this is striking validation of what Henry George told us in 1879, and Winston Churchill told us 100 years ago.   See http://business.timesonline.co.uk/tol/business/specials/rich_list/rich_list_search/

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

• cable-TV franchises;
• cellphone licenses;
• 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 mine!"

Actually, that's from a recent (2006) modernized abridgment by Bob Drake, available at http://www.progressandpoverty.org/ or http://hgchicago.org/audio.   Here's HG's 1879 original:

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.

Council of Georgist Organizations Conference: Cleveland 2009

Council of Georgist Organizations Conference: Cleveland 2009.

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/

People's Budget Day: the Centennial

A friend in the UK gave me permission to share his post here.  You might explore Winston Churchill's writings on the subject, entitled "The People's Land" at wealthandwant.com/docs/Churchill_TPL.html.  I'm on the fly today, and didn't copy in Jock's links.  You might want to go to his original to pursue them!

http://jockcoats.me/peoples_budget_day

People's Budget Day
tagged with:  * Land Value Tax    * 1909    * common birthright   * economic liberalism    * geo-libertarian   * Henry George
* house of lords   * liberalism   * lloyd-george  * Revolutionary Liberalism  * tax   * welfare state

Just a brief post to recall that today, 29th April, is the hundredth anniversary of David Lloyd-George's 1909 "People's Budget". Thanks to the wonders of the interwebs you can now read the whole budget online.

He ended (the main section - in the "Balance Sheet" section) with these words which have stood for a century accusing his successors of all parties for not having solved the problems he set out on the road to do:

"This, Mr. Emmott [in the chair of the Ways and Means Committee to which the budget was addressed], is a War Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away we shall have advanced a great step towards that good time when poverty and wretchedness and human degradation which always follow in its camp will be as remote to the people of this country as the wolves which once infested its forests."

From the financing of the newly created Old Age Pension and Disability insurance to the funding of the preparations for real war in the form of spending on Dreadnought battleships there was much for Lloyd-George to find in his budget. He didn't miss a trick, and more or less anything that could conceivably be taxed was, in many cases for the first time, taxed.

But for many of us it is for what ended up not being taxed that this budget is most remembered. The debate surrounding this budget, with speeches up and down the country by Lloyd-George himself and more notably perhaps Winston Churchill, must be one of the best documented in history, for it was a first attempt to implement some permanent form of Land Value Taxation. A tax shift that Churchill described as:

"the new attitude of the State towards wealth. Formerly the only question of the tax-gatherer was, "How much have you got?" We ask that question still, and there is a general feeling, recognised as just by all parties, that the rate of taxation should be greater for large incomes than for small. As to how much greater, parties are no doubt in dispute. But now a new question has arisen. We do not only ask today, "How much have you got?" we also ask, "How did you get it?

• Did you earn it by yourself, or has it just been left you by others?
• Was it gained by processes which are in themselves beneficial to the community in general, or was it gained by processes which have done no good to any one, but only harm?
• Was it gained by the enterprise and capacity necessary to found a business, or merely by squeezing and bleeding the owner and founder of the business?
• Was it gained by supplying the capital which industry needs, or by denying, except at an extortionate price, the land which industry requires?
• Was it derived from active reproductive processes, or merely by squatting on some piece of necessary land till enterprise and labour, and national interests and municipal interests, had to buy you out at fifty times the agricultural value?
• Was it gained from opening new minerals to the service of man, or by drawing a mining royalty from the toil and adventure of others? 
• Was it gained by the curious process of using political influence to convert an annual licence into a practical freehold and thereby pocketing a monopoly value which properly belongs to the State — how did you get it?"
  

That is the new question which has been postulated and which is vibrating in penetrating repetition through the land."

How Do We Fix an Ailing Economy?

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.

Payroll Taxes

I'm in the mode of my annual rant against the federal (and other) income taxes, but the reality is that for most of us, Income taxes are a lesser problem (other than the complexity and effort required to calculate them) than are Payroll Taxes.

Here's the data, from the CBO: http://www.cbo.gov/publications/collections/tax/2009/paying_more_payroll.pdf

Percent of Households Paying More in Payroll Taxes Than Income Taxes (2006)
	Among Households Paying Some Payroll Tax		Households Paying Income or Payroll Tax
	Employee Share	Both Shares	Employee Share	Both Shares
Income Category
Lowest Quintile	99.4	99.7	98.6	99.0
Second Quintile	91.4	98.5	88.4	95.2
Middle Quintile	69.8	94.3	62.7	84.6
Fourth Quintile	38.0	85.5	33.7	75.8
Highest Quintile	8.6	44.9	7.7	40.3
Top 10%	3.3	22.5	3.0	20.1
Top 5%	1.4	6.0	1.3	5.4
Top 1%	0.6	1.0	0.5	0.9
All Quintiles	58.8	83.3	54.4	76.9

Note: Income categories are defined by ranking all people by their comprehensive household income adjusted for household size—that is,divided by the square root of the household’s size. (A household consists of the people who share a housing unit, regardless of their relationships.)  Quintiles, or fifths, contain equal numbers of people. Households with negative income (business or investment losses larger than other income) are excluded from the lowest income category but are included in totals.

Source: Congressional Budget Office.

So among the bottom 80% of us,

• 74.6% of those who pay some payroll tax see more flow from their paycheck in payroll taxes than they pay in federal income taxes;
• when one counts both the employer and employee portions,  94.5% pay more in payroll taxes;
• among those who pay either income or payroll taxes, 70.9% pay more in payroll taxes, taking into account only the employee portion; and
• 88.7% pay more in payroll taxes when both the employee and employer payments are counted. 

CBO data: Historical Effective Federal Tax Rates for 2005 and 2006

Every year at this time, the Congressional Budget Office issues an interesting report on taxable income and federal taxes paid.  It doesn't seem to attract much attention.  Maybe we're just used to hearing how concentrated income -- and, in particular, income-producing wealth -- is in America.  Maybe it just conflicts with our notions of "created equal" and "equal opportunity" and "equal liberty," and, not knowing how to deal with the reality, we skip over it.

But here it is.   The report is at http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf and historical data is at http://www.cbo.gov/publications/collections/taxdistribution.cfm  The first report is short -- 5 pages with 2 tables (one for 2006, the other for 2005 -- 3 panels to each).

Here are some highlights.

1. The average federal tax rate, including individual income taxes, was 20.7% in 2006.  That is composed as follows:

9.1%	individual income taxes
7.5%	social insurance taxes
3.4%	corporate income taxes
20.7%	total federal taxes
source: Table 1, Panel A, 6th column.

2. While the average federal tax rate is 20.7%, the average tax rates within quintiles are as follows

	average federal tax rate
bottom 20% of us	4.3%
second 20%	10.2%
middle quintile	14.2%
fourth quintile	17.6%
only in the highest quintile does the     overall federal tax rate exceed the "average"	25.8%

3. Within the top quintile, the table provides these data:

	average federal tax rate
top 10% of us	27.5%
top 5%	29.0%
top 1%	31.2%

4. I did a bit of spreadsheet work, and broke out the quantiles, which yields a very different picture from what the preceding four data points might suggest:

	average federal tax rate
top 1% of us	31.2%
next 4%	25.6%
next 5%	22.5%
next 10%	20.8%

In other words, we can reasonably estimate that fewer than 10% of us pay more than the "average" share of realized income in taxes.  Lake Wobegon in reverse: over 90% of us are below average.

5. Individual income taxes, so much on the minds of some of us at this time of year, represented 9.1% of income, or about 20% more than the 7.5% that social insurance taxes represented in aggregate.  But only in the highest quintile do individual income taxes exceed social insurance taxes. [Table 1, fifth data column, 2nd and 3rd rows.]

6. Distribution of income and of taxes:

	percent of pretax income	percent of federal taxes	percent of after-tax income	percent of social insurance taxes
top 1% of us	18.8%	28.3%	16.3%
next 4%	13.1%	16.4%	12.2%
second 5%	9.7%	10.7%	9.6%
second 10%	14.1%	13.9%	14.0%
[There may be some rounding error in there somewhere.]
top 20%	55.7%	69.3%	52.1%	43.5%
The bottom 80% of us received less than half the aggregate income.

7. Social insurance taxes place a signficant burden on people in the bottom 4 quintiles.  The figures incorporate both the employee's portion and the employer's portion.                   

		Avg Social  Insurance Tax Rate		Share of Social Insurance Tax Liability
Top 1%		1.6%		4.0%
Next 4%		6.3%		10.5%
	Top 5%		3.4%		14.5%
Second 5%		8.6%		11.2%
	Top 10%		4.6%		25.7%
Next 10%		9.2%		17.8%
	Top 20%		5.8%		43.5%
	Fourth 20%		9.6%		25.0%
	Middle 20%		9.4%		16.6%
	Second 20%		9.2%		10.3%
	Bottom 20%		8.5%		4.4%

The bottom 20% of us pay more in Social Insurance Taxes than do the top 1%, though the top 1% have average pretax income 100 times as high and aggregate income 4 times as high.

In 2006, the FICA wage limit was $94,200.  So the second pair of data columns suggests the distribution of wage income below $94,200. 

7. Table 1, Panel 2 shows that 57.7% of capital income flows to the top 1% of us; a bit of spreadsheet work shows that 16.4% flows to the next 4% of us; 7.0% to the second 5% of us, and 6.7% to the second 10% of us; the top fifth of us gets 87.2% of that income.   Remember that next time you hear about "Main Street" and "Small Business" as if they are enriching the middle class.

If we define the middle class as the middle 60%, we find that they have 41.8% of pretax income, 44.9% of aftertax income, pay 30.2% of taxes, and 52.7% of social insurance tax taxes

Just What is Home Equity?

What is home equity, and how does it relate to the American Dream?

Sometimes we hear about "building home equity" as if it were some sort of muscular activity.  There are two ways to "build home equity."  The first, the old-fashioned way, is by paying down the mortgage.  This happens fairly slowly.  On a 30 year mortgage, and making no extra payments, here is the payoff schedule for several mortgage rates:

Cumulative Mortgage Payoff Schedule for 30-year Mortgage
	Mortgage Interest Rate
Year	4%	5%	6%	7%	8%
1	1.7%	1.4%	1.2%	1.0%	0.8%
2	3.5%	3.0%	2.5%	2.0%	1.7%
5	9.4%	8.0%	6.7%	5.7%	4.7%
10	20.8%	18.1%	15.7%	13.6%	11.7%
15	34.6%	31.1%	27.8%	24.7%	21.8%
20	51.5%	48.7%	43.9%	40.3%	36.8%
25	73.0%	68.8%	65.5%	62.2%	58.9%
28	86.4%	84.2%	81.9%	79.4%	76.8%
30	100.0%	100.0%	100.0%	100.0%	100.0%

The other -- and much faster -- part of home equity, of course, is the appreciation we have come to expect.  What few people realize is that houses do not appreciate; they are never worth more than what it costs to build them, less depreciation, to account for deterioration, obsolescence of systems, etc.  A Federal Reserve Board Study (May, 2006) pegged annual depreciation of single family home stock at 1.5%.

So when housing was rising in value by 5% or 10% per year, what was rising was the price of the land under the houses, not the houses themselves.  

What causes land to rise in value?  Not individual activity.  Not the landholder himself.   There is no muscular activity on the part of the landholder here!  (Yes, the owner who does a gut renovation adds to his property's total value, though not always as much as the project costs.  Most studies suggest that adding a second bathroom to a home which has only one actually adds more to the value of the property than the project itself costs; some say that adding a deck also pays back more than the project costs.   Few other projects pay back fully, so while home equity may rise, it is through individual investment, and the owner's net assets do not increase as a result.)

Land rises in value for reasons which have little or nothing to do with the landholder himself:

1. Local taxpayers invest in goods and services which people value: good schools; well-paved streets; well-equipped fire trucks and ambulances; police trained in CPR and equipped with defibulators; parks; courts, jails; sewers and city water replacing septic and wells; libraries; community colleges; letc.
2. State and federal taxpayers invest in goods and services which people value: electricity; good transportation systems; infrastructure; "pork";  broadband; public colleges and universities; etc.
3. Private sector investments: good hospitals; cultural amenities; an active and vibrant local economy; a healthy downtown; private universities; charities; etc.
4. Technological advancements: elevators (urban land); air conditioning (southern states); earth moving equipment -- advances from WWII equipment (making difficult sites easier to develop); fiberglass boats (waterfront properties); maglev trains; etc.
5. Population increases: natural fertility increases; assisted fertility; fewer wars or auto or industrial accidents; better outcomes after such events; reduced infant mortality; better health resulting in longer lifespans; people having larger families because of religious beliefs or greater prosperity; local amenities which attract population to the school district or metro area; immigration from other countries; lower cost of living drawing more people;

So if all those things were happening, why did we just experience a crash in land values?   

Well, what we experienced was a crash in land prices.  Land prices got well ahead of land values in many places.  This is known as land speculation.  People were "investing" in land, buying homes for outlandish prices, thinking that prices would continue to rise forever.   Mortgage lending standard went from 20% down to 10% down to 5% down to 1% down to 105% financing.  Private Mortgage Insurance became the norm for first-time buyers.  Debt to income ratios rose from 28% to the high 30's, or weren't even discussed.  Mortage rates dropped, particularly for Adjustable Rate Mortgages.  Interest-only mortgages became available, and negative amortization mortgages were a possibility. 

How could we be so stupid? 

Did someone yell "FIRE?"  (as in the FIRE sector of the economy: Finance, Insurance, Real Estate)    The FIRE sector was making money from this.  Home builders.  Land sellers -- including farmers, land speculators, mom-and-pop subdividers, and many others.  Builders.  Real estate brokers.  Mortgage brokers. Mortgage insurance sellers.  Title insurance sellers.   Homeowners' insurance sellers. 

We considered this private enterprise and pronounced it good. 

Go back to the five items listed above, and tell me why a smallish -- or even a largish -- portion of the private sector ought to reap all the benefits for all those things, in proportion to the size and quality of their landholders.

But only the Georgists were aware of what was really happening.  What was happening was that we attempted to increase the homeownership rate from the low 60's to the high 60s, under the guise or illusion that by doing so we'd be extending the "American Dream" to an additional 10% of our fellow residents of this country.    But of course the homes they could afford were not in the places where land was appreciating, and their attempts to "catch the brass ring" which would, they hoped, make them part of the "rising tide."  (Okay, too many metaphors ... but haven't we heard all of them in this context?)

What did the Georgists know?  That land value which our system permits landholders to privatize ought to be socialized.  Small landholders ... most of the residential owners, that is ... get to privatize some small land value ... a bone to shut them up, while the big landholders -- individuals, family trusts, corporations, REITS, philanthropies, universities, churches and other tax exempts, individual foreign investors, pension funds, private equity funds, foreign sovereign funds, etc. -- get to privatize the BIG land value in our cities.    Even in our small cities and medium-sized towns, the businesses which are their own landlords are, on average, far more profitable than those which are tenants, and landlords take a significant share of their tenants' production -- a non-agricultural version of sharecropping, which we honor as if the landlord was actually a producer of some sort.

John Stuart Mill, one of the classical economists, told it this way: Landlords grow rich in their sleep.

So back to the initial question: what is home equity, and how does it relate to the American Dream?  Home equity is a sop, thrown to keep the puppies quiet and calm, while the big dogs enjoy the contents of the manger.

We'd be far better off if the vast majority of us -- and our elected officials -- understood and talked openly about what Henry George was telling us, in his landmark book on political economy entitled Progress and Poverty -- subtitled: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy: that we permit the privatization of the economic value of our natural and other rightly-common resources, including urban land value, at our extreme peril. 

We turn the American Dream into our common nightmare.  Increasing home equity holdings is not the answer to our problems; it is, at bottom, a symptom or sidelight of the problem itself!   

We can fix this through a simple and just tax reform.

Oh -- you might be interested in how Henry George dedicated his book, Progress & Poverty:

to those who, seeing the vice and misery that spring from the unequal distribution of wealth and privilege, feel the possibility of a higher social state and would strive for its attainment.

Lawson Purdy: The Influence of Taxation on the Prosperity of Cities

Reprinted in The Public, October 6, 1906

THE INFLUENCE OF TAXATION ON THE PROSPERITY OF CITIES

A Paper Read by Lawson Purdy of New York
Before the League of American Municipalities,
in Session at Chicago, September 26, 1906.

In 1873, Enoch Ensley, a wealthy planter of Tennessee, wrote to Governor Brown asking him to call a special session of the legislature to amend the constitution so that changes could be made in the tax laws of Tennessee. The tax rate of Nashville was three and one-half per cent and of Memphis four per cent, and Mr. Ensley said that the burden on business was insupportable. Great land owner as he was, however, Ensley did not urge a search for new sources of revenue, but rather the application of the "rule or motto" which, he said, "It would be well for the State to adopt and have cut into the stone at the capitol (in large letters and have them gilded), in the Senate chamber, the hall of the House of Representatives and in the governor's office, . . . to-wit:

"Never tax anything
That would be of value to your State,
That could and would run away, or
That could and would come to you."

This rule laid down by Ensley has become an axiom, but before it can be applied the constitutions of about thirty-five States must be amended by repealing those despotic limitations on legislative power which are not found in the earlier constitutions, and which should find no place in the constitution of any free people. Because of constitutional and statutory restraints upon the power of cities we need discuss only what can be accomplished in most cities by executive officials under existing laws.

Conditions of Prosperity.

City officials often regard the city as apart and distinct from the individual citizens, and sometimes therefore uphold policies which appear to be in the interest of the city corporation, although opposed to the interests of the citizens. This is, of course, a short-sighted view. In reality nothing can be good for the city which is bad for the citizen, nor bad for the city which is good for the citizens. Again, many consider the interest of classes and speak of what will be advantageous to manufacturers or shopkeepers or land owners. This, too, is a mistaken attitude. Citizens should be regarded alike as men, and not as the owners or users of some kind of property. All depend upon the workers who render service for service, and it is fair therefore to consider the interest of all citizens as bound up in the interest of those who earn their living; and that city may be regarded as the most prosperous in which it is easiest and most agreeable to earn a living.

The interests of the city and of its citizens are identical. Nevertheless, they may be viewed from both standpoints.

The 2007 Survey of Consumer Finances: Are we going to complain, or are we going to create the conditions which will improve things?

I'll be writing about the first published report from the 2007 Survey of Consumer Finances, which is online at http://www.federalreserve.gov/pubs/bulletin/2009/pdf/scf09.pdf but I thought I'd share something I posted in response to some comments on another blog about Paul Krugman's observation that "families are poorer now than they were in 2001.":

So are we going to complain about it, or are we going to correct it?

Yes, this can be corrected.  No, even most university-educated economics majors aren't familiar with how.  Their economics texts spend a few pages on it, but in the context of a 10-week trimester or a 15-week semester, most economics professors can't talk about everything in a 700-page text books, and naturally they'll skip what their own instructors skipped. 

That doesn't mean the answers don't exist.

The answers come from an earlier and better paradigm in economics.  What students learn today is neoclassical economics, which much better suits some of the special interest folks who have over the years given generously to our colleges and universities.  If you wanted tenure, what would you choose to teach?

What we need to know is from classical economics.  John Stuart Mill, David Ricardo, Henry George ... these are the authors you'll want to get to know.

For a bit on Mill, see http://www.wealthandwant.com/themes/Mill.html

For a bit on Ricardo, see http://www.wealthandwant.com/themes/Ricardo.html

To get to know Henry George, start with the four speeches of his linked on the front page at http://www.wealthandwant.com/ You might also read Weld Carter's Introduction to Henry George, at http://www.wealthandwant.com/docs/CarterW_intro.html  and your choice of essays from HG's excellent book Social Problems, linked from the same website.

These ideas provide a way to fix some of our most serious -- and otherwise intractable -- social, economic, environmental and justice problems.

Or we can keep doing the same thing and hoping for a different outcome.

Child Labor in 1906; Child Poverty in 2009

More than one in six of all the children in the United States from ten to sixteen years of age are employed in some gainful occupation — that is, in working for wages for some employer. That comes perilously near the child of any reader of these pages. The margin of safety is too small. The danger to democratic institutions, which must depend on the vigor and intelligence of our citizenship, is too great. Child Labor strikes at the roots of democracy, and presents the greatest moral issue the American people have had to face since the Civil War. Our States cannot afford to let individuals enslave themselves before they have reached the age of discretion. —Samuel McCune Lindsay, in Woman's Home Companion for September (1906).   [Cited in The Public, October 13, 1906.]

In 2006, 17.4% of our children lived below the poverty level. (In 2006, the FPG for a family of four was $20,000; for 2009, it is $22,050.)
In 2006, 20.7% of our children under 6 years lived below the poverty level, and 43.3% lived at less than 200% of the FPG.

I don't have drop-out rates at my fingertips, but do you doubt that there is a correlation?

A Price for Existence

This comes from The Public, October 13, 1906, and gives witness to, among other things, Leona Helmsley's much-quoted observation that "We don't pay taxes.  The little people pay taxes."

A Price for Existence.

"After the rent has been paid and food has been bought the very poor have but little left for anything else." This is the unpleasantly significant observation of S. E. Forman in his report in the Bulletin of Labor for last May on conditions of living among the poor. His report is based upon the household accounts of nineteen families of the District of Columbia. They were not pauper families. They were intelligent enough to keep household accounts correctly and honestly; and they were sober, industrious and moral people. Yet they were people to whom the loss of a day's wages would have caused embarrassment, and the loss of a week's a serious discomfort. That they were thrifty is evident from the figures, which cover a period of five weeks.

The item of food varied from $2.14 to $3.24 per week for the family of lowest expenditure, up to as much as $6.00 and even $8.60 for families of highest expenditure, the number of persons to a family varying from 4 to 10. For rent per month, the lowest for all the 19 families was $4.00 and the highest $14.00, the aggregate being more than $160.00 a month, or $1,920 a year. This annual payment is more than half the total assessed value of the houses in which those people live, and almost a third of the assessed value of the entire property, land and buildings both included. Of course assessed values are under-values. In these cases they are only about two-thirds of market value. But even on market values the rents were 20 per cent of the total value of the property — a pretty extortionate figure.

But that is not the worst. The actual market value of the houses is about $5,000. Now, an exceedingly liberal allowance for house taxes, repairs, etc., would be 15 per cent, or $750; and this would leave, out of the annual rentals of $1,920, the sum of $1,170 annually, merely for the occupancy of a little site upon the earth's surface, the value of which is annually maintained by annual taxation toward which these very people contribute a lion's share. And yet, when their meager food has been bought (a dollar a week or thereabouts for each person), and "after the rent is paid," they have little left. It takes all they earn to keep body and soul together. And the biggest item is the landlord's exaction; not for houses, but for the land on which the houses stand. Is the extortion only accidental, or is it an inevitable feature of our boasted civilization?

Equal Rights

THE EQUAL RIGHTS OF MEN.
For The Public.

All men are not born equal,
They are born with an equal right
To things by no man created —
The bounties of Nature's might: