LVTFan's Blog

The Land Questions: #2 Airports

2. Some of our busiest airports do not have sufficient runways, landing slots at preferred times, gates, tarmac, etc., to meet demand. Flights end up circling and arriving late, producing cascading delays for passengers across the country.  Many airports are constrained by surrounding communities not to expand their acreage.  It takes time to build a new airport further from the city, and is expensive to add the transportation infrastructure to serve it. How should scarce resources at existing busy airports be allocated?

a.  The airlines who currently own a gate ought to be able to sell it off to the highest bidder, or rent it for whatever they can charge their competitor.  

b.  Landing rights ought to be sold once and for all to the highest bidder.  When they no longer want them, or can no longer use them profitably, those rights should be theirs to auction off at whatever price they can get, even if it is double or triple -- or more -- what they initially paid.

c.  Leases for landing rights at peak hours should be auctioned off, with a term of a few years, and the revenue should first support airport costs and air-traffic control expenses.   Should there be an excess, it should not be returned to the leaseholders: it belongs to the community at large and should go into general revenue.

d. Your suggestion?

 

see a related post, below.

Mason Gaffney: An Alternative Reform

In the files I've been digging through, from the late 50s to the early 80s, I found an early draft of a fine paper by Mason Gaffney about California's Proposition 13, for presentation at an August, 1978 conference.  I dug around and found a published copy of that paper, and think it worth sharing here. Original title, "Tax Limitation: Proposition 13 and Its Alternatives"

I see that there continue to be people who see the stupidity of Proposition 13 -- see http://www.dailyrepublic.com/opinion/letters-editor/time-for-a-petition-against-proposition-13/ Perhaps they will find this of use.  Georgists recognize Prop 13 as the antithesis of logical and just taxation.

First, a few of my favorite paragraphs, which I hope will whet your appetite for the whole paper.  I won't attempt to provide the context (you can pick that up when you continue to the paper, below).

• "There is a deferment option for the elderly, bearing only 7% interest (which is about the annual rate of inflation). In California, as also in Oregon and British Columbia, hardly anyone takes advantage of this deferment option. This fact, it seems to me, rather calls the bluff of those who so freely allege that the woods are full of widows with insoluble cash-flow problems, widows who are losing their houses to the sheriff and whose heirs presumptive, will not help keep the property, which they will eventually inherit."

You can read more about the Poor Widow by clicking on the "widow's skirts" link at left, in the tag cloud, and by reading Bill Batt's Property Tax Relief Measures: Answers to the "Poor Widow " Argument (or the pdf version)

• We hear a lot these days about cutting the fat out of the public sector; but there is fat in the private sector too. I interpret "fat" to mean paying someone for doing nothing, or for doing nothing useful. Most economists agree that payments to people. for holding title to land is nonfunctional income, since the land was created by nature, secured by the nation's armed forces, improved by public spending, and enhanced by the progress of society. "Economic rent" is the economist's term, but in Jarvis-talk we may call it the fat of the land or "land-fat." It has also been called unearned increment, unjust enrichment, and other unflattering names. Howard Jarvis has said that the policeman or fireman who risks his life protecting the property of others has his "nose in the public trough." But it has seemed to generations of economists that the owner whose land rises in value because public spending builds an 8-lane freeway from, let us say, Anaheim to Riverside, and carries water from the Feather River to San Diego, is the first to have his nose in the trough. Nineteenth-century English economists who worked this out were more decorous. They said things like "landlords grow rich in their sleep" (John Stuart Mill), or the value of land is a "public value" (Alfred Marshall) because the public, not the owner, gives it value.
  
  Some 43% of the value of taxable real estate in California is land value. When we lower the property tax we are untaxing not only buildings, but also land-fat.

• The ownership of property is highly concentrated, much more so than the receipt of income. Economists in recent years are increasingly saying that the property tax is, after all, progressive because the base is so concentrated, and because so little of it can be shifted. But this message has not yet reached many traditional political action groups who continue to repeat the old refrains. Two remedies are in order.

• One is to collect and publish data on the concentration of ownership of real estate. The facts are simply overwhelming and need only to be disseminated.
• The second remedy is to note how strikingly little of the Proposition 13 dividend is being passed on to renters. This corroborates the belief of economists that the property tax rests mainly on the property owner where it originally falls, and not on the renter.

• A high percentage of real property is owned from out of state and even out of the country. The percentage is much higher than we may think. It is not just Japanese banks and the Arabs in Beverly Hills. It is corporate-held property which comprises almost half the real estate tax base. If we assume that California's share of the stockholders equals California's share of the national population, then 90% of this property is absentee-owned; the percentage may be higher because many of these, after all, are multinational corporations with multinational ownership.

• No one seems to have seized on the fact that half the taxable property in California is owned by people not voting in the state. Senator Russell Long has suggested the following principle of taxation: "Don't tax you, don't tax me, tax that man behind the tree."  Property tax advocates have done well in the past and should do well again in the future when they make their slogan: "Don't tax you, don't tax me, tax that unregistered absentee. Don't tax your voters, they'll retaliate; tax those stiffs from out of state." Chauvinism and localism can be ugly and counterproductive, as we know; but here is one instance where they may be harnessed to help create a more healthy society.  The purpose of democracy is to represent the electorate, not the absentee who stands between the resident and the resources of his homeland.
  
  California's legislative analyst, William Hamm, estimates that over 50% of the value of taxable property in California is absentee-owned. This is such a bold, bare, and enormous fact it is hard to believe that Californians will long resist the urge to levy taxes on all this foreign wealth. They may be put off by the argument that they need to attract outside capital, but that carries no weight when considering the large percentage of this property which is land value.

• Property income is generally more beneficial to the receiver than is the same income from wages or salaries, because the property owner does not have to work for it.

• Property, particularly land, has been bought and sold for years on the understanding that it was encumbered with peculiar social obligations. These are, in effect, part of our social contract. They compensate those who have been left out. Black activists have laid great stress in recent years on the importance of getting a few people into medical and other professional schools. Does it not make more sense that the landless black people should have, through the property tax, the benefit of some equity in the nation's land from which their ancestors were excluded while others were cornering the supply?
  
  A popular theme these last few years is that property owners should pay only for services to property, narrowly construed. Who, then, is to pay for welfare — the cripples? Who is to pay for schooling — the children? Who should sacrifice for the blacks — Allan Bakke? Who should finance our national defense — unpaid conscripts? The concept that one privileged group of takers can exempt itself from the giving obligations of life denies that we are a society at all.

Here is, perhaps, my favorite:

• We can ask that a single standard be applied to owners troubled by higher taxes and to tenants troubled by higher rents. When widow A is in tax trouble, it is time to turn to hearts and flowers, forebode darkly, curse oppressive government, and demand tax relief. When widow B has trouble with escalating rents, that touches a different button. You have to be realistic about welfare bums who play on your sympathy so they can tie up valuable property. You have to pay the bank, after all. A man will grit his teeth and do what he must: garnishee her welfare check. If that is too little, give notice. Finally, you can call the sheriff and go to the beach until it's over. That's what we pay taxes for. Welfare is their problem.
  
  Anyway, widow B is not being forced out of her own house, like widow A and so many like her. Jarvis said that taxes are forcing three million Californians from their homes this year. But in truth, while evictions of tenants are frequent, sheriff's sales of homes are rare. Those who do sell ("because of taxes," they say, as well as all their other circumstances) usually cash out handsomely, which is, after all, why their taxes had gone up.

• Then there is the fruit tree anomaly. Under Proposition 13, a tree can only be assessed at its value when planted, with a 2% annual increment. The value of a seed thrown in the ground or even a sapling planted from nursery stock is so small compared with the mature tree that this is virtual exemption. This anomaly rather graphically illustrates how Proposition 13 automatically favors any appreciating property over depreciating property. The greatest gain here goes, of course, to appreciating land.

• Finally, build no surpluses. Surpluses attract raiders and raiders are often organized landowners. "Property never sleeps," said the jurist Sir William Blackstone. "One eye is always open." Even though the surplus was built up by taxing income, Howard Jarvis made it seem the most righteous thing in the world that it should be distributed to property owners. He was geared up for this because his landlord patrons kept him constantly in the field.

• Economists of many generations even before Adam Smith and continuing to the present — have preached on the advantages of land as a tax base. Let me enumerate a few of those.

•  
  • A tax on land value is the only tax known to man which is both progressive and favorable to incentives. One can wax lyrical only about a tax that combines these two properties, because the conflict between progressivity and incentives has baffled tax practitioners for centuries, and still baffles them today.

•  
  • A land tax is progressive because the ownership of the base is highly concentrated, much more so than income and even more so than the ownership of machines and improvements.

•  
  • Also, the tax on land values cannot be shifted to the consumer. The tax stimulates effort and investment because it is a fixed charge based merely on the passage of time.

•  
  • It does not rise when people work harder or invest money in improvements. Think about this. It is remarkable. With the land tax, there is no conflict but only harmony between progressivity in taxation and incentives to work and invest. In one stroke it solves one of the central divisive conflicts of all time.

The land tax does that because it cuts only the fat, not the muscle. It takes from the taxpayer only "economic rent," only the income he gets for doing nothing. If people could grasp this one overriding idea, then the whole sterile, counterproductive, endless impasse between conservatives who favor incentives and liberals who favor welfare would be resolved in a trice, and we could get on to higher things.

The final paragraphs speak directly to us in 2012.  34 years have passed since this was written.

• Summing up, Walter Rybeck, an administrative assistant for Congressman Henry Reuss of Wisconsin, and head of the League for Urban Land Conservation, has sagely suggested that we distinguish two functions of business: wealth-creating and resource-holding.   A good tax system will not make people pay for creating wealth but simply for holding resources.  Most taxes wait on a "taxable event" — they shoot anything that moves, while sparing those who just sit still on their resources.
  
  If we really want to revive the work ethic and put the United States back on its feet, we had better take steps to change the effect of taxes on incentives. Legislatures have got in the habit of acting as though persons with energy and talent, and with character for self-denial, should be punished, as if guilty of some crime against humanity. We cannot study the tax laws without inferring that Congress regards giving and receiving employment to be some kind of social evil, like liquor and tobacco, to be taxed and discouraged by all means not inconsistent with the rights of property. Little wonder the natives are getting restless. If we tax people for holding resources rather than creating wealth and serving each others' needs, we will be taking a giant step toward a good and healthy society.

 If your appetite is whetted by these excerpts, you can read the entire article below:

The Opposition to Land Value Taxation

It is frequently pointed out by Georgists that there are no really good rebuttals to land value taxation.

This excerpt from a 1971 letter to my grandfather from a colleague describes where the opposition comes from:

There may be be no "arguments that actually oppose LVT" as Bill says, but there are plenty of people who not only actually but actively oppose it.  These are the people who are making hundreds of millions of dollars a year on the unearned increments land speculation gets as a result of land being so undertaxed that the landowner puts up only a trifling share of the enormous community investment needed to make his land reachable, livable and readily saleable.  Of 7 million-odd New Yorkers I would guess that perhaps 70,000 people profit by today's misapplication of the property tax while 7 million lose by it, but the problem is that the 7 million have no idea of what they are losing while the 70,000 jolly well know that they have a good thing going for them and fight to keep it.

I've been trying for a year to get my friend, J___ C___, past president of the Realtors and Chairman of the Realtors Economic Research Committee to stop fighting LVT, but he keeps coming back to how his father bought some land near San Diego for $20 an acre before 1900 and sold it for $4,000 an acre around 1950 and his father could not have held it all that time if he had had to pay more than a nominal tax.

I don't think anyone should take the equity argument seriously.  Just because the ownership of underused land has been subsidized for years does not entitle its owners to expect the subsidy to be continued forever, and likewise, for those who bought land in the expectation that the subsidy would be permanent.  The equity objection to increasing the tax on land would apply almost equally to any other tax increase.

A week later, another letter includes this:

Just because landowners have had a wonderful subsidy racket going for them in the past should not give them any claim on having that subsidy continue ad infinitum.  I do agree with Lowell that the transition to LVT would raise problems, and in any area with a high tax rat on property I can see that the transition would have to be staggered over a period of years, probably not less than five or more than ten, dpending on how big a tax rate was to be shifted off improvement values onto location values.

In the same file, a copy of a 1969 letter from the same person to Lowell (Harriss):

I don't see how tripling the tax on land could fail to force almost all owners of underused land to get busy and put it to better use.  Conversely, I don't see how taking the equivalent of a 51% sales tax off improvements could fail to be a tremendous stimulant to improvements.  If a 7% Federal tax credit on improvements was so effective, what would wiping out a 50% tax do!

 

Congress: Trading stock on inside information?

Congress: Trading stock on inside information? - CBS News.

Perhaps you saw "60 Minutes" last Sunday (11/13).  Just in case you didn't, here are some excerpts from the transcript.  I commend the whole thing to your attention.  It begins:

The next national election is now less than a year away and congressmen and senators are expending much of their time and their energy raising the millions of dollars in campaign funds they'll need just to hold onto a job that pays $174,000 a year.

Few of them are doing it for the salary and all of them will say they are doing it to serve the public. But there are other benefits: Power, prestige, and the opportunity to become a Washington insider with access to information and connections that no one else has, in an environment of privilege where rules that govern the rest of the country, don't always apply to them. ...

Most former congressmen and senators manage to leave Washington - if they ever leave Washington - with more money in their pockets than they had when they arrived, and as you are about to see, the biggest challenge is often avoiding temptation.

Peter Schweizer: This is a venture opportunity. This is an opportunity to leverage your position in public service and use that position to enrich yourself, your friends, and your family.

Schweizer says he wanted to know why some congressmen and senators managed to accumulate significant wealth beyond their salaries, and proved particularly adept at buying and selling stocks.

Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on.

Kroft: Why does Congress get a pass on this?

Schweizer: It's really the way the rules have been defined. And the people who make the rules are the political class in Washington. And they've conveniently written them in such a way that they don't apply to themselves.

The buying and selling of stock by corporate insiders who have access to non-public information that could affect the stock price can be a criminal offense, just ask hedge fund manager Raj Rajaratnam who recently got 11 years in prison for doing it. But, congressional lawmakers have no corporate responsibilities and have long been considered exempt from insider trading laws, even though they have daily access to non-public information and plenty of opportunities to trade on it.

Schweizer: We know that during the health care debate people were trading health care stocks. We know that during the financial crisis of 2008 they were getting out of the market before the rest of America really knew what was going on. 

...

While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.

...

Peter Schweizer thinks the timing is suspicious, and believes congressional leaders should have their stock funds in blind trusts.

 

Schweizer: Whether it's uh-- $15,000 or $150,000, the principle in my mind is that it's simply wrong and it shouldn't take place.

But there is a long history of self-dealing in Washington. And it doesn't always involve stock trades.

 

Congressmen and senators also seem to have a special knack for land and real estate deals. When Illinois Congressman Dennis Hastert became speaker of the House in 1999, he was worth a few hundred thousand dollars. He left the job eight years later a multi-millionaire.

Jan Strasma: The road that Hastert wants to build will go through these farm fields right here.

In 2005, Speaker Hastert got a $207 million federal earmark to build the Prairie Parkway through these cornfields near his home. What Jan Strasma and his neighbors didn't know was that Hastert had also bought some land adjacent to where the highway is supposed to go.

Strasma: And five months after this earmark went through he sold that land and made a bundle of money.

 

Kroft: How much?

Strasma: Two million dollars.

Kroft: What do you think of it?

Strasma: It stinks.

We stopped by the former speaker's farm, to ask him about the land deal, but he was off in Washington where he now works as a lobbyist. His office told us that property values in the area began to appreciate even before the earmark and that the Hastert land was several miles from the nearest exit.

 

But the same good fortune befell former New Hampshire Senator Judd Gregg, who helped steer nearly $70 million dollars in government funds towards redeveloping this defunct Air Force base, which he and his brother both had a commercial interest in. Gregg has said that he violated no congressional rules.

It's but one more example of good things happening to powerful members of Congress. Another is the access to initial public stock offerings, the opportunity to buy a new stock at insider prices just as it goes on the market. They can be incredibly lucrative and hard to get.

Schweizer: If you were a senator, Steve, and I gave you $10,000 cash, one or both of us is probably gonna go to jail. But if I'm a corporate executive and you're a senator, and I give you IPO shares in stock and over the course of one day that stock nets you $100,000, that's completely legal.

And former House Speaker Nancy Pelosi and her husband have participated in at least eight IPOs. One of those came in 2008, from Visa, just as a troublesome piece of legislation that would have hurt credit card companies, began making its way through the House. Undisturbed by a potential conflict of interest the Pelosis purchased 5,000 shares of Visa at the initial price of $44 dollars. Two days later it was trading at $64. The credit card legislation never made it to the floor of the House.

...

Brian Baird is a former congressman from Washington state who served six terms in the house before retiring last year. He spent half of those 12 years trying to get his colleagues to prohibit insider trading in Congress and establish some rules governing conflicts of interest.

Baird: One line in a bill in Congress can be worth millions and millions of dollars. There was one night, we had a late, late night caucus and you could kind of tell how a vote was going to go the next day. I literally walked home and I thought, 'Man, if you-- if you went online and made-- some significant trades, you could make a lot of money on this.' You-- you could just see it. You could see the potential here.

So in 2004, Baird and Congresswoman Louise Slaughter introduced the Stock Act which would make it illegal for members of Congress to trade stocks on non-public information and require them to report their stock trades every 90 days instead of once a year.

Kroft: How far did you get with this?

Baird: We didn't get anywhere. Just flat died. Went nowhere.

Kroft: How many cosponsors did you get?

Baird: I think we got six.

...

Baird: When you have a bill like this that makes so much sense and you can't get the co-sponsorships, you can't get the leadership to move it, it gets tremendously frustrating. Set aside that it's the right thing to do, it's good politics. People want their Congress to function well. It still baffles me.

 

But what baffles Baird even more is that the situation has gotten worse. In the past few years a whole new totally unregulated, $100 million dollar industry has grown up in Washington called political intelligence. It employs former congressmen and former staffers to scour the halls of the Capitol gathering valuable non-public information then selling it to hedge funds and traders on Wall Street who can trade on it.

 

Baird: Now if you're a political intel guy. And you get that information. Long before it's public. Long before somebody wakes up the next morning and reads or watches the television or whatever, you've got it. And you can make real-- real-time trades before anybody else.

Baird says its taken what would be a criminal enterprise anyplace else in the country and turned it into a profitable business model.

Baird: The town is all about people saying-- what do you know that I don't know. This is the currency of Washington, D.C. And it's that kind of informational currency that translates into real currency. Maybe it's over drinks maybe somebody picks up a phone. And says you know just to let you know it's in the bill. Trades happen. Can't trace 'em. If you can trace 'em, it's not illegal. It's a pretty great system. You feel like an idiot to not take advantage of it.

 

 

 

Progress: Sharing the Earth So All May Prosper - September-November issue

The newest issue of Progress, an Australian Georgist publication, is online here.  The motto is "Sharing the Earth So All May Prosper."

There is a lot of good material, and I'll share some of the things that caught my eye.

• An article about a film entitled "Real Estate 4 Ransom" which I commend to your attention, wherever you live. (I'll keep you posted on the film itself.)
• “Economist James Galbraith has noted that only 12 out of 15,000 economists in the US noticed the US$8 trillion dollar housing bubble” (page 6)
• We propose a change in the tax mix so that future infrastructure pays for itself by expanding the tax base without increasing the tax burden. (page 9)
• Infrastructure adds enormous value to land in prime locations according to proximity and serviceability.
  Land Value Capture (LVC) is a simple technique to recycle the publicly funded windfall gains that accrue to land owners. Importantly, these windfalls are captured over the life-cycle of the infrastructure, such that one generation is not hit with the total infrastructure costs (ie as per the current preference for Developer charges). (page 10)
• Windfall gains from infrastructure add up to several times the cost of the infrastructure to surrounding properties. We propose that a sufficient contribution from this windfall be recycled back to the government so that other infrastructure projects can be funded without substantially burdening one generation over another.
  At present land speculators baulk at paying barely 10% of the land bounty (windfall gain) back to the community via government’s Land Tax, Council Rates, Stamp Duties and Capital Gains. (Page 11)
• “Henry George did more than draw ‘the deadly parallel of riches and misery.’ He recast the science of political economy by working out the natural laws of the distribution of wealth. He destroyed the current academic theory of wages and capital. He amplified and extended Ricardo's law of rent. He dug to the root of the wealth distribution.” (John Dewey, quoted on page 22)
• If you could choose the sort of society that you were to be born into, would you choose one in which the distribution of wealth is guaranteed to be equal? (page 28 -- and don't miss the illustration cartoon on "trickle-down economics"!!)
• The world faces a series of worsening crises, climate instability, rising energy costs, economic apartheid, and erosion of democratic institutions.
  What is required is not a set of technical instruments that try to resolve  these, one at a time. We need a new social philosophy that addresses all these crises simultaneously. (page 38)
• All 17th century authors took it for granted that God had given the earth to
  all people in common, not just to those who had claimed title to a part of it. Starting with that premise, the difficulty lay in justifying private ownership of nature. They saw that private property in land or ocean or other gifts of nature was an obvious usurpation of the rights of the rest of humanity. Private ownership was deemed a necessary evil to achieve more productive use of nature, but it was clearly an evil, never an institution that was good in itself. (page 39)
• The idea of charging a fee for the use of nature and sharing the revenue equally might seem like a proposal that would not be threatening to powerful interests, but it is. The wealthy at present take a disproportionate share of the common stock of resources, both renewable and non-renewable, and they aim to keep it that way. (page 40)
• “Ironically, what comes closest to being sacred in modern societies are individual rights, private property, and personal freedom.” (page 41)
• “It seems that most people are concerned only with the future of their own children, not with the next generation as a whole.” (page 43)

A lot of good material -- and I've barely mentioned the graphics!

Who are the Criminals? --Henry George, Jr., 1901

I am including this because I find it timely and timeless; because it provides a good simple mathematical look at the perversity of our current tax system, and because it illustrates my notion that when Leona Helmsley said "WE don't pay taxes; the little people pay taxes," she was not describing tax evasion but actual tax structures.

Henry George, Jr., was a U. S. Congressman.  His most famous writing is "The Menace of Privilege." 

WHO ARE THE CRIMINALS?

BY HENRY GEORGE , JR.
Copyright, 1901, by The Abbey Press, 114 Fifth Avenue, New York

I.    Who are the Criminals? 5
II.   French Aristocracy of Privilege 6
III.  New York Aristocracy of Privilege 10
IV.  Robbery of Masses by Classes 12
V.   Nature and Extent of Robberies 13
VI.  How to Stop the Robberies 18
VII. The Criminals 23

I.    WHO ARE THE CRIMINALS?

In considering the problem of how to check or control vice and crime in New York the question at once raised is: Who are the criminals? Who are they who cause these dreadful evils in the community? For unless we know exactly where the disease lies how can we attempt a remedy?

II. FRENCH ARISTOCRACY OF PRIVILEGE.

When the French Revolution broke loose the people followed the lead of men who seemed no better than a pack of devils, for they maimed, they brutally tortured and they slew. Women, whose only offense was that they were members of an arrogant and grinding aristocracy, were stripped naked, treated with every indignity and killed with every mark of ferocity. Old men and young children belonging to the upper classes were butchered, and persons of blameless life and humane intention were trampled under foot when they attempted to stay the carnival of blood.

Who will dare say that these revolutionary leaders, these butchers, were not criminals — criminals whose bloody hands must shine down through history? They were men turned to monsters; brutes with human intelligence, striving for new ways to torture and kill.

But whence came they? Not from without. They sprang up within. They represented the spirit of retaliation — of fiendish retaliation for the centuries of wrong done them and theirs. They were the progeny of poverty made by robbery.  Their deeds were the deeds of monstrous criminals, but they themselves were the spawn of hideous injustice — an injustice that gave to the few riotous feasting and gorgeous raiment and to the many rags and black bread filled with maggots.

The aristocrats during centuries of power had appropriated the soil of France, and all other Frenchmen had to purchase the privilege of living in their native country.  Not content with this, the upper classes had thrown upon the masses all those heavy taxes which it was the plain intent only the landowners should bear. They shifted upon the common people all the expenses of an extravagant, aristocratic government, and through ground rents sucked away all the people's remaining substance, save just enough to keep them alive and at work. Who were making the masses so poor and wretched was as plain as day. The masses themselves could see, and when they raised the sword against the aristocracy all hell seemed to break loose.

Who were the criminals? Why, of course they were criminals — horrible, revolting criminals — who did this guillotining, who committed these butcheries.

But who made these criminals? Clearly those who bore so heavily upon the people — the aristocrats, who kept the people in fearful poverty and ignorance which bred the spirit of bloodthirsty tigers.

The aristocracy, therefore, were the primary, the real criminals.


III. NEW YORK ARISTOCRACY OF PRIVILEGE.

I wish to proceed with greatest caution, with utmost conservatism. Yet candor compels me to ask: Have we not in our community an aristocracy of privilege — an aristocracy far more rich, far more powerful than was the aristocracy of old France? And have we not a corresponding poor class? Is it not true that half the population of Manhattan Island is living in what Ex-Mayor Hewitt rightly calls "those terrible tenements?"

That Prince of the Church, Bishop Potter, has proposed in the emergency that we have noonday prayer meetings. By all means, we all say. Let us bow ourselves before Almighty God and ask for relief from this social scourge. Yet what if, while we pray, we abate not the power of our aristocracy of privilege; what if we do nothing to mitigate the poverty of the million tenement dwellers?

The distinguished divine has also proposed a military police. If that were good, would not a local standing army be better? It would keep order, at least for a time. But would it cure the general poverty among the masses? Would it not rather act like a lid fastened down on a volcano — work well, until fire and molten stone and destruction belched forth? What then?


IV. ROBBERY OF MASSES BY CLASSES.

Assuming that we are sincerely trying to make civic conditions better, that we are seeking a cure (if there be a cure) for the general vice and crime in the community, should we not ask ourselves some plain questions? Is it not the truth that we have an aristocracy? Is it not the truth that we have a poor class? Is it not certain that the rich are growing richer and the poor poorer and more numerous?

I believe that there can be but one answer — yes.

Yet I can see no reason for this state of things unless it be that the classes are robbing the masses.


V. NATURE AND EXTENT OF ROBBERIES.

LET us consider how the classes may be robbing the masses into poverty.

It is said that when the first Dutchmen came sailing into New York Bay they bought Manhattan Island for $24. That was for the land alone, no houses or other improvements being here. Today the selling value of the bare land of this same Manhattan Island is at least $3,000,000,000. Those who possess the land of this island, now get what is equivalent to a ground rental of $150,000,000 a year, with this sum steadily swelling. The ground rental of Greater New York cannot be less than $225,000,000 yearly.

This vast sum is paid over to the landlord aristocracy — for what? For doing nothing. The people multiplied from a ship's crew to several millions in and about the island and behold! the vast value of land which in the beginning sold for but $24. The increment of value obviously has not been produced by individuals; it is entirely aside from and in addition to the value of improvements, which spring from human labor, which are produced by individuals. This increase in land value is a publicly-made value. It of right belongs to all the people. Do all the people get it? No, the few whom we recognize as the owners of this land claim that value and get it. The people at large in the community get nothing. Do not these landed aristocrats — of which the old French nobility were in many respects prototypes — rob the community? Do they not go far toward robbing a large part of the people into poverty?

Take another instance of robbery of the many by the few. Observe what we are doing about public franchises. A public franchise is a public right of way, a public highway. Modern civilization, with its intense centralization, its condensed population, and its interdependence of individuals, makes these highways of vital importance to the community. They are the arteries of the body-social, the channels of intercommunication and transportation, of heat, and water, and light, and power, and sewage. Were they suddenly destroyed, a large part of the population would die as quickly as a member of the human organism withers up and dies when the flow of blood is cut off from it.

Then if these public franchises, these public rights of way, these public highways, are so vital to the body-social, so necessary to the well-being of the people, what should be our policy toward them?  What is our policy toward them? Why, in the case of water and sewage we treat them as public property, operating them publicly through public officials. But what do we do in respect to the other franchises? What do we do regarding street railroads, telephones and telegraphs, electric lighting and heating and gas, and steam supply? All these public franchises are treated as if they were private franchises. Upon all these public highways we allow private individuals to set the claim of ownership; to make charge upon the people; make charge upon the body-social for its blood, as it were. And a conservative estimate of the annual value of these public franchises in Greater New York at this time is $30,000,000.

Here, then, we have two forms of grand, constant, continuous robbery of the people — an aristocracy of privilege appropriating public ground rents and public franchise values, so that a few of the population are enabled to live in palaces while a million crowd into tenements.


VI.   HOW TO STOP THE ROBBERIES.

Now the masses of the people of Greater New York lose annually by the appropriations of the landed and franchise aristocracy —

In ground rents	$225,000,000
In franchise values	30,000,000
While they are compelled to pay in various taxes for the support of local government	98,000,000
Which makes in all	$353,000,000

What shorter way is there to relieve poverty and to do social justice than to abolish the $98,000,000 of general taxes, which fall mainly upon industry or the fruits of industry and terribly hamper the masses of the people; and then what more simple than to appropriate for local governmental expenses that sum out of the $225,000,000 of publicly-made land values?  Why not further lighten the load of the masses by taking over into public ownership and management all public municipal franchises, just as are water and sewage now; and then why not cut down their cost of service to the public that $30,000,000 which now represents purely franchise value in the charges of the private corporations that possess and manage them?

For a third step, why not make these municipal utilities free to the public, meeting the expense of their operation by another appropriation of the publicly-made land values?

And for a fourth step, why not appropriate for an old-age pension to every citizen, rich and poor alike, for public parks, for public lectures and concerts, or for any other or for all such purposes — all that still remains of the publicly-made land values?

What would be the result of such a policy? It would be that all the people in Greater New York would be relieved of the burden of $98,000,000 of various taxes; that the great charge of the many branches of the public franchise service on the people would be entirely wiped out and abolished; and that the whole of land values, that is, of ground rents, would be enjoyed by all the people equally, being appropriated for public uses.

Would this make any difference in the community? The welkin is made to ring by the most influential of the tax-payers when, under present conditions, the taxation authorities raise or lower the tax rate even 1%. What, then, would happen if all taxation were lifted from the fruits of toil, if public utilities were made free, and if land values were to benefit, not a class, but the whole people?

Such a tax would be just, because it would fall on this publicly-made value; it would be certain, because land cannot be hidden or lessened in amount; it would force all unused or inadequately used valuable land into its highest use, for no one could afford to hold such land vacant for a speculation, as very many do now.

Land in Greater New York would therefore be cheaper — how much cheaper may be judged by the fact that two-thirds of the land within the city limits, though extremely valuable, is not now used.  This unused land would compete with the used land for users, so that land values in the community generally would fall. At the same time all building materials, being relieved of present taxation, would be far cheaper, making two of the chief elements for house building would be greatly less in cost, and consequently, larger, lighter, better dwelling accommodations in every way could and would be supplied to the masses of the people, and especially to the million now living in tenements.

What would help the poorest would be of direct and indirect benefit to all others in the community; and this would be but one of a large harvest of good results that the people would reap from such a policy.

The privileged classes, the aristocrats, would lose their privileges, but they would have no less rights than any and all other citizens of Greater New York.


VII.   THE CRIMINALS.

That able and public-spirited citizen, Mr. President Baldwin, of the Long Island Railroad, and Chairman of the Chamber of Commerce Anti-Vice Committee of Fifteen, has said that this is not the time for "idealist scheme of reform." But we are trying to put down vice and crime in the community; and the question is: Who are the criminals?

Let us be frank with ourselves: Who are the criminals? Are they the housebreakers, the unfortunate women who walk the streets and the police officials who take blood-money? Or are they those who rob the masses of the people into poverty — deep, biting, degrading poverty?

Are not the aristocrats of privilege, knowingly or unknowingly, the criminals we should first consider in an examination of civic disease in New York?

0-0-0-0-100

I have a family member who, when Herman Cain says "9-9-9," plays a sound bite of another voice shouting "nein! nein! nein!"

Georgists have a better proposal for how we ought to fund our common spending.

• 0% tax on wages
• 0% tax on sales
• 0% tax on corporate profits
• 0% tax on buildings and equipment
• 100% recovery of our commonwealth

This probably raises several questions in your mind:

• what is "recovery of our commonwealth"?
• how will it affect me?

Our commonwealth includes the value of land -- not the improvements made by the present or previous owner, but the value of the site itself, which is created by the gifts of nature; by the investment of the local, state and national communities in public goods and services (including most "pork"); by the presence of the community and its economic activity.  While good farmland may be worth $5,000 or $10,000 per acre, depending on climate and proximity to markets, suburban residential lots might be $35,000 to $1,000,000 -- or far more! -- per acre, and an acre in midtown Manhattan can be worth $250,000,000 or more.  The landholder doesn't create that locational value.

Our commonwealth includes the value of ecosystem services.  It includes the value of electromagnetic spectrum (the airwaves which most people would agree rightly belong to the American people, not to corporations).  It includes the value of water, particularly fresh water for drinking and water for irrigating crops and for corporate use.  It includes the value of government-granted privileges.  It includes the value of geosynchronous orbits -- those parking spots in space for satellites whose owners and customers would not want to see crashing into each other.  It includes the value of landing rights at busy congested constrained airports, such as LaGuardia or JFK, particularly at their rush hours.   It includes the value of scarce on-street parking in congested cities.  It includes the value of nonrenewable natural resources extracted from below the earth and the oceans, for 200 miles beyond our land borders.  It includes a whole range of other similar things.  

As you look at that paragraph, compare it to the 0-0-0-0 list above, and notice that it collects upfront certain values, and leaves the rest to those who produce.   It is direct taxation rather than indirect, and one could reasonably argue that it isn't even really taxation; rather it is more in the nature of a user-fee.

It is Natural Public Revenue.

Once one has sat with this idea for a while, it seems quite unnatural to permit the value to continue to accrue to private individuals, or to corporations publicly or privately owned, or to entities other than the community as a whole!

Recall how concentrated wealth is in the US: The 2007 SCF [the Federal Reserve Board's Survey of Consumer Finances] reported that aggregate net worth is "distributed" as follows:

• Top 1% of us have 33.8%
• Next 4% of us        26.6% [cumulative: 60.4%]
• Next 5% of us        11.1% [cumulative: 71.5%]
• Next 40% of us      26.0% [cumulative 97.5%]
• Bottom 50% of us    2.5%

Recall also that the Forbes 400 families are specifically and intentionally omitted from the SCF, and that Forbes estimates that they represent 2.5% of aggregate net worth. So add that 2.5% to the numerator and denominator.  And note, as Michael Moore did, that it is very similar to the value of the Net Worth of the bottom 50% of us.

And it seems quite unnatural to tax wages, and sales, and corporate profits, and buildings at all before we've fully collected Natural Public Revenue.

Will Natural Public Revenue be sufficient to meet all the needs of all levels of government? 

Quite possibly not, at least today when we are so reliant on a social safety net because current conditions have kept a significant share of our people from providing well for themselves.   But I regard it as altogether possible that within a generation or two, it could be quite sufficient, in part because it would have the effect of redistributing some of the wealth which today is pouring into the pockets of a relative few of us.

How much of corporate profits are coming from (quite legal) privatization of the value of natural resources, the value of being able to get away with polluting air, water and soil, and the value of other privileges which corporations -- public and private -- are used to enjoying?  One of the interesting findings in the SCF is that the value of privately held businesses [BUS] actually exceeds the value of publicly held ones [EQUITY] in household wealth -- and the value of both is highly concentrated:

                                    EQUITY          BUS              

[value, billions, 2007] $13,694.3    $14,893.7

• Top 1%            36.0%            62.7%
• Next 4%          30.5%            25.5%
• Next 5%            5.5%            12.4%
• Next 40%         19.6%             6.0%
• Bottom 50%       1.5%             0.4%

Source: http://lvtfan.typepad.com/lvtfans_blog/americas-wealth-distribution-2007-wealth-concentration-part-1-of-3.html, lines 19 and 28

Consider, too, how much more of this value the Forbes 400 have!   These two categories represent 21.2% and 23.1% of aggregate net worth held by the rest of us -- a total of 44.3%.  Most of the 2.5% is likely in these two categories.  I'll leave the math to you.

Another whistle-blower, ignored by authorities ...

 .... this time because perhaps his targets are the well-situated, those in a position to contribute the funds which political campaigns need.   Keep in mind that NYS's former governor, though previously an attorney general, is also the scion of a real estate fortune.

Urban real estate investors live off the fruit of the land, the fruits of the community's sowing, and we praise them as philanthropists when they toss us a few tulips in the median strips or parks.

And notice that the refusal continued even Harry Markopolis testified before a congressional committee about his repeated and data-filled attempts to bring Bernard Madoff's obvious Ponzi scheme to the attention of the SEC (January, 2009).  Talk about tone-deafness on the part of those we pay to monitor things for us.  As someone else recently wrote, small government or weak government?   And government of, for and by WHICH people??

I hope some upstate legislators will push at this issue.  Their constituents ought to expect it of them.

http://www.reuters.com/article/2011/09/27/column-dcjohnston-taxcheats-idUSS1E78Q01320110927

Ignoring tax cheats: David Cay Johnston

Tue Sep 27, 2011 7:12am EDT

The writer is a Reuters columnist. The opinions expressed are his own.

By David Cay Johnston

(Reuters) - Each year New York State lets real estate investors evade at least $200 million of taxes. In peak years the figure likely rises to $700 million, if known tax cheating in another state is any indication. Some of the investors who cheat New York State also cheat New York City out of at least $40 million annually.

Back in the 1990s Jerry Curnutt figured out how to finger such cheats when he was the top partnership specialist at the Internal Revenue Service. Curnutt's computer sifted through tax returns until he learned how to separate thieves from honest taxpayers. The tax-evasion estimates of $200 million and $40 million are his.

Six New York state tax auditors took classes Curnutt taught in June 2000 and gave stellar evaluations. California's top tax auditor praised Curnutt's course as "effective, relevant and most importantly, appreciated and understood by our auditors."

-----

For a graphic, click link.reuters.com/cer93s

-----

Why has nothing been done for more than 11 years to make the cheats in New York pay what the law requires?

New York state and city are strapped for cash, slashing services for the poor, disabled and elderly. With penalties of up to 50 percent plus interest at penalty rates, the state is easily due more than $5 billion from years still open to collection, I calculate.

Every state has similar issues, but New York matters most as the epicenter of highly leveraged real estate investment pools.

Curnutt found that real estate investment partnerships with depreciated properties often misreport gains when they sell. That such cheating is widespread screams about tax law enforcement looking the other way when those at the top steal. In contrast, New York State has a well-deserved reputation for going after people whose mistakes cost the state as little as three dollars.

GO AWAY, THEY SAY

Yet in letter after letter since 2001, New York state tax officials told Curnutt to go away, smugly insisting there were no untaxed millions.

As head of audits for New York State, Thomas Heinz wrote Curnutt in 2003 that the state was "not interested in pursuing you or any other consultant on the matter" of systematic cheating by real estate partnership investors. Months later Heinz wrote a second letter that made it clear he had not understood what Curnutt was proposing, while reiterating that there were no untaxed millions to be found.

A year ago Curnutt again was told to go away because there was no money going untaxed.

And yet in Pennsylvania, Curnutt's research "resulted in the taxation of over $700 million in unreported income," the Pennsylvania Revenue Department wrote in a letter to tax administrators across the country in reference to a single instance.

"Without his assistance, our staff would have spent numerous hours getting to the crux of the issues, in that especially complex case," Pennsylvania tax authorities said.

Pennsylvania has relied on Curnutt since 2002, calculating that every dollar spent on his research and subsequent audits was worth $10 of tax.

So why are sightless sheriffs ignoring massive cheating by the most affluent among us?

The likely reason became clear nearly a decade ago when one Kentucky tax official told Curnutt that the governor's office did not want his services because it would uncover tax cheating by influential citizens, meaning campaign donors.

It is time for New York's three top state officials, all Democrats with higher ambitions, to do their duty, especially since the thieves are virtually certain to include some of their campaign contributors.

LAWMEN AND THEIR DUTY

Governor Andrew Cuomo, who harbors ambitions to be president, made his name as a state attorney general who appeared to get tough with Wall Street. Lieutenant Governor Bob Duffy rose from Rochester street cop to chief and would love to be governor. So would Attorney General Eric T. Schneiderman, elected in 2010 on a promise to be tough on white-collar crime.

Mayor Michael Bloomberg, an independent, has a similar duty to go after tax cheats even if these should turn out to include some of his friends.

New York law gives authorities leverage aplenty. The mere threat of public exposure through civil lawsuits would prompt many to write checks. For repeat offenders, the threat of indictment for tax evasion would produce checks even faster. Faced with the prospect of civil or criminal charges, many in positions of public trust would be ruined if their names got out.

The general partners -- those in charge in the partnerships Curnutt investigated -- took calculated steps to cheat and the most serious offenders should face indictment and, upon conviction, years of prison time. But many limited partners may have assumed their K-1 tax statements were reliable. Innocent victims owe taxes and interest, but not penalties. Those with multiple untaxed gains are not innocents.

As lawmen Cuomo, Duffy and Schneiderman all understand leverage. They have enough to lift billions into the state treasury where it belongs just by indicating in letters that failure to pay will result in disclosure of names. Will they?

Until Cuomo, Duffy, Schneiderman and Bloomberg enforce the law, their official inaction lends credence to billionaire Leona Helmsley's remark, quoted by her housekeeper, that "we don't pay taxes; only the little people pay taxes."

This column will keep you posted on whether these officials act or not. (Editing by Howard Goller)

I'm glad to see DCJ quoting Leona Helmsley -- but I don't think he yet fully "sees the cat" or realizes that Leona Helmsley's reference could just as accurately have been to tax STRUCTURES, not to tax evasion.

Buildings do not appreciate.  Even with the best of care and occasional renovations, they depreciate, as technologies advance, efficiencies improve.   What rises in value is land -- the location -- and it rises for reasons which have nothing to do with the individual or corporate landholder (resident or absentee), and everything to do with the community and with public investment in infrastructure and services.  These owners are evading taxes which support that spending.  In multiple ways, they are reaping what they do not -- cannot! -- sow.   These companies are in it for the so-called "capital" gains, which aren't "capital" at all, but land gains.

Another example of the FIRE sector gobbling up the profits of the productive portions of our economy.  Their "free lunch" is at the expense of the rest of us.    And the phrase "rich people's useful idiots" comes to mind.

The goal is a fair field and no favor.  But I don't think that's what this crowd is looking for.

Economic Indicator: Westport, CT, teardowns

Teardown of the Day - WestportNow.com

This blog-like page contains an interesting economic indicator: despite a tepid economic environment for most home construction, the pace of teardowns in Westport, Fairfield County, Connecticut, seems to be steady to rising.

Westport sits on Long Island Sound, and has a reputation for excellent public schools and good express trains to midtown Manhattan.  ($308 for a monthly pass -- 44 miles, about 67 minutes; $5 per day for day parking -- 300 spots -- but a 4 to 5 year wait for one of 1800 parking stickers -- $325/year.)

Many of the entries show recent transaction prices, which readers of this site will know are clearly simply for land value.  

It would be interesting to know what the bank appraisals on these properties would show, in terms of the value of the houses and the value of the land itself -- assuming that the buyers needed to take out mortgages.

And it would also be interesting to know how Westport's assessor values these properties, and what adjustments take place in neighborhood land values as the evidence of most of the value being in the land accumulates.

Some years ago -- 2003 -- the assessor's worksheet was published.  It is still online, at http://www.westportnow.com/Revalmodel022704.pdf.

And it turns out that Westport's assessments are online.  So let's look at the newest teardown, posted 10/1/2011:

This was the aftermath of the demolition this week of 3 Great Marsh Road in the Saugatuck Shores across from the entrance to the Saugatuck Harbor Yacht Club, Built in 1934, the 1 1/2-story conventional-style house had 1,701 square feet, was situated on a 1.11-acre property and changed ownership in August 2011 for $1,136,174

The assessor's database shows an "appraised" value of $249,800 for the buildings, and $696,400 for the land, or a total of $946,200.  (This is the supposed "market value" of the land at the date the valuation was done, October 1, 2010.  By Connecticut law, assessed value is 70% of that market value.  Peculiar law; one wonders whose interests it was designed to serve.)

The Assessor’s primary responsibility is to find the “full and fair cash value” of your property so that the taxpayer may pay only his/her fair share of taxes.

The record also shows that the property sold in August 2010 for $1,000,000.  The previous transaction was in 1973, which suggests that it might have been an estate situation.  But 14% appreciation in 12 months is pretty sweet these days.

So that 1.11 acres sold for $1,136,174 in August, 2011, and then the buyer paid an additional amount for the removal of the 1700 square foot building -- say, $10 psf?  That's $17,000, for a total of about $1,150,000.    And the assessor says the land is worth $$696,400.  

And that $250,000 square foot house?  Over valued by quite a bit.

The 2010 tax rate for Westport was $14.85 per $1000 of value.  (I couldn't find the 2011 figure, but it was expected to be 15% higher.) That's based on the 70% value, which for this property was $662,400.  So the 2010 property tax was $10,300.   

$10,300 as a percentage of the transaction price, $1,136,174, is 0.91%.

Clearly the town is well run, and people want to live there.  They're willing to pay $1.1 million for a lot.   And even in these times, financially difficult for many people, there are people who can afford to pay $1.1 million and more for a bit of land on which to live.

How much of the value of these lots comes from excellent schools and good municipal services, and how much from the existence of Metro North, of I-95 and the Merritt Parkway, the presence of Long Island Sound, and the presence of NYC?  And how much comes from the presence of hedge funds and other high-paying employers which are skimming the cream from the productive economy and pocketing that value, because we let them do so?

LTE: Rising Rate of Poverty - NYTimes.com

Rising Rate of Poverty - NYTimes.com.

To the Editor:

Re “Poverty Rate Soars to Highest Level Since 1993” (front page, Sept. 14): I know this is heresy, but why don’t we increase taxes on the wealthy and spend this money on infrastructure projects to put unemployed people to work?

Just asking.

ROBIN LEVIN
San Francisco,
Sept. 14, 2011

And consider what would happen: the infrastructure projects would increase the value of the land served by them, and make things work better in those communities, as reliable streets and bridges and other worthwhile projects do.  

Who owns that land?  Is it local folks, who one might hope would spend their infrastructure-created windfall locally (but who might simply use it to buy additional land, benefiting the seller, be he absentee, local, corporate, whatever)?   Is it REITs?  Sovereign wealth funds?

Now suppose that instead of leaving all that infrastructure-created wealth in the pockets of the landowners, local communities wised up and collected some significant fraction of it (without raising taxes on buildings in the process: the really wise communities would take this opportunity to reduce or eliminate the taxes on the buildings!) for public purposes.   What do you think would happen?

I suspect that the vacant lots in town would soon start to disappear.  They wouldn't leave town.  They'd get built on, when their carrying costs as vacant lots rose and the disincentive to build was decreased or eliminated. That would create jobs.  

Depending on what the market wanted, it would also create housing, and creating housing also leads to creating jobs to service those homes -- plumbers, electricians, painters, home improvement of various kinds.  

But it might not be the high-end housing we're used to seeing; not McMansions, but more modest homes.  Not luxury condos but housing for people of all ages and stages, and not just for the highest-income people but for people of more modest means.

Sounds like a virtuous circle to me.   Natural Public Revenue.

But if you like the current approach, by all means tell us why we should stick with it.  (California's Prop 13 is an extreme case of suppressing this wise form of taxation.  Look where it has gotten them!)

Are Public Sector Jobs, by Definition, a Drain on the Economy?

Are public sector jobs by definition a drain on the economy?

Some would say that they are.  But I think there might be a false assumption in there -- one which comes from an unexamined assumption.

When a public sector job is funded via a tax on wages, or a tax on sales, or a tax on buildings -- things which are produced by human effort -- there is a burden to the economy. 

• Employers must pay far more than their employees receive in wages and benefits;
• purchasers must pay more for goods than the producers (including those in the distribution chain -- distribution is part of production) receive;
• owners of buildings and other improvements must pay an annual penalty in proportion to the value of those improvements.

All these taxes reduce the demand for what is taxed: work, goods (and, in some places, services), buildings.  Fewer jobs are created, fewer goods produced, fewer buildings built and maintained well, less expensive technologies are favored over more expensive ones.

And these are the taxes most of us think about when we think about how to finance public goods.

But suppose we got ourselves outside the smallish box of taxes we're used to thinking about -- those advocated by the neo-classical economists -- and looked more closely at the wisdom of the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George.

Suppose we thought about the effect of our public spending: effective public spending on goods and services that people value increases land value.

Good schools.  Paved streets.  Well-maintained streets.  Lit streets.  Plowed and cleaned streets.  City water.  Sanitary sewers.  Stormwater runoff.  Police, with well-equipped cars.  Fire departments, with trained professionals and the best of equipment.  Ambulances (ditto).  Hospitals with life-saving equipment and professionals.  Other public-health services.  Courts and jails.  Libraries.  Public health services. Social services.  Parks.  Playgrounds.  Highways (ideally with maintenance taking place at night or at least not during rush hour).  Bridges, well-maintained.  Buses, subways, railroads (passenger and freight).  Airports.  Beaches.  Utilities (more commonly owned by shareholders, but quite realistically municipally provided). Preschools.  Community colleges.  Colleges and universities.  Perhaps after-school activities for children.  A social safety net.  This list is incomplete, but each item on it is a fair example of what makes communities good places to live and worth paying to live in and conduct business in. 

The presence of each of these things increases land values within the area served.  It increases what landlords can charge tenants; it increases what houses and commercial buildings will sell for, without the building owner improving the building or providing additional services.

So does it make any sense to finance these things via taxes on wages?  On sales? On buildings? On imports? On personal possessions?  On cars?  On trucks and business equipment?  On business inventory?    None of these things are increased in value by the provision of public services and goods.  

What increases in value is land -- as everyone can chant, the three most important things in real estate are location, location and location!  Much of that is the availability of publicly-funded services.  (The rest can be attributed to the presence of the community -- drawn in large part by those services, but also by the beauties of nature, the harbors and rivers, the climate, other favorable conditions; to opportunities seen by entrepreneurs and nonprofits to provide commercial ventures and cultural amenities; to advances in technology and science such as air conditioning, mosquito control, fiberglass pleasure boats, etc.)

 

A few weeks ago (8/30/11), David Cay Johnston's blogpost at Reuters, entitled "Budget Costs That Raise Costs," ended with this example:

How can raising taxes put more money in your pocket? By increasing efficiency.

This year we paid $210 in higher property taxes to finance trash collection and sidewalk snowplowing. Purchased retail, those services would cost about $600. So we spent $210 to save $390. That translates into a savings of $1.86 for every dollar of increased tax. As an added bonus we have just one garbage truck a week down our street, not a different company’s truck everyday, and garbage cans on the street only on Thursday mornings.

What matters in public finance is not how much government spends, so much as what it buys with our tax dollars. But don’t count on the new “Super Congress 12″ committee to undertake serious cost-benefit analysis because cutting spending has become dogma and reality-based policies would be economic heresy.

I don't think DCJ has yet seen the cat, but he's certainly recognizing whiskers.

Would you be willing to pay $210 more in property taxes each year to have these services delivered to you by your community?  I'd guess that you might be very willing to pay $210 more in property taxes AND be willing to pay the seller -- and for 30 or 15 years, a mortgage lender -- more for the privilege of living in a place where these things are provided by the community, rather than just outside of town.    (If we paid for this via a tax on land value, the selling price wouldn't rise; and the cost of living would be held down.  If we pay for it by taxing wages, or sales, or buildings, we do burden the economy, just as the "small government" people tell us.  But they don't seem to consider the possibility of taxes which don't burden the economy.)   

There are some who would complain that private trash collectors and the people who specialize in shoveling the sidewalks ought not to have competition from the public sector.   They should all live in communities which feel this way.   And they might concede that others might choose to live in communities which provide these amenities efficiently, with people paid from the public treasury.  

The FIRE sector

I'm re-reading Robert Reich's recent NYT piece, which sits open on my computer:

By 2007, financial companies accounted for over 40% of American corporate profits and almost as great a percentage of pay, up from 10% during the Great Prosperity.

and

The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America’s vast middle class. The spending of the richest 5% alone will not lead to a virtuous cycle of more jobs and higher living standards.

If you've seen the film "Inside Job"  -- and even if you haven't -- you are probably at least somewhat aware of the extent to which the FIRE sector is, in the immortal words of someone I worked for years ago, "eating our lunch."

A recent column by David Cay Johnston provided an interesting graphic showing officer compensation as a percentage of corporate profits.  In recent years, that percentage has ranged from a low of about 23% in 2005 to a high of about 67% in 2002, with the most recent year, 2008, being about 48%.     So for 2008, it is "1 for 'us,' 2 for the shareholders."   Now his study extends far beyond the top corporate executives; he's looking at an IRS database that includes nearly 1 million corporate officers, and it may well be that the top, say, 2% of that rarified universe takes a hugely disproportionate share of the total compensation.   However, DCJ raises a very important question, which I take to be a challenge that someone in Congress should ask the Congressional Budget Office to look into, to determine whether companies -- particularly nonpublic ones -- are understating officer pay by not filing Schedule E.   And he says,

Existing IRS corporate tax reports have for years shown us that fewer than 2,600 megafirms own 81% of all U.S. corporate assets. Another 21,000 firms control most of the rest, leaving just 5.6% of corporate assets that are divvied up among the more than 5.8 million remaining corporations.

and

The 2008 data show that while almost three million corporate officers show up on company tax returns, only 990,077 Social Security numbers do and of those only 838,551 show up as being paid. That may suggest some owners took no pay in the Great Recession year of 2008, but it also hints at how many officers serve multiple corporations.

The officer pay data show huge variations. Just 70 officers of 1,660 Real Estate Investment Trusts averaged $5.2 million in 2008, while 832 officers of 7,670 property and casualty insurers averaged $3.8 million. At the other end, more than 2.1 million officers of S Corporations averaged just $107,403, though many of them must be officers of multiple corporations.

The FIRE sector.  Finance, Insurance and Real Estate.   Most Americans, even those who were economics majors in college, don't know the mechanisms by which these parts of the economy get to be such amazing sponges.  For the most part, the economics majors learned their economics from instructors whose own education was primarily in neoclassical economics, which only sees two main inputs to production -- Labor and Capital -- and somehow tuck Land in as a minor subset of Capital, rather than recognizing, as the classical economists did, that Land -- locations, natural resources and like things -- is unique and vital.  The common wisdom knows "Buy land: they aren't making more of it" but doesn't realize the monstrous and far-reaching corollaries.   Who does know?  Those whose adult reading experience includes the ideas of Henry George, particularly "Progress and Poverty" and "Social Problems."   And "The Science of Political Economy" has a lot to say about vested interests and their effects on economics.   (You're likely to find some very quotable material!)   All three are online.

Joe Stiglitz, last summer at a talk in Queensland, Australia, made remarks that were reported as follows:

The financial sector (the banks and regulators) are the culprits behind the global financial crisis which has crippled the global economy. Apparently, moneylenders have been skimming 40% of the profits from companies that actually make and produce things. His big point was that this is not really the role of the financial sector. The financial sector's job is to support economic growth, not cripple it.

"Finance is a means to an end," he said. "The lack of balance between the financial sector and the economic sector was actually the real problem in this economic crisis (NOT the real estate bubble)."

 

Public Revenue for Libraries

One of my standing google alerts took me to an editorial in a northern California newspaper endorsing the call for a 1/8 cent sales tax on all goods sold within the county to support the town's library, which, because of Proposition 13, receives no funding from the county.  They have exhausted their ability to do fundraisers, have no acquisition budget, and if the library goes from its current 3 or 4 days a week to none, the existing collection will be divided up and people will have to drive to one of the other 2 libraries in the county.

I tried to post a comment, but they seem only to accept comments through Facebook, and I'm not a FB subscriber.  So I'll share my comment here:

Amenities like libraries and good schools and well-maintained streets, among many others, are what make a community a good place to live.  They support and increase land values; they don't change the value of the structures that sit on that land. 

The sensible way to finance them is through taxes proportionate to land value.  Those who own a large, well-located lot pay the most; those who own a small share of a large, well-located lot pay their share of that lot's value; those who own a small, well-located lot, close to the amenities people find desirable, pay in proportion to the value of their location, not to what they paid for their property, be it last year, 5, 10, 20, 30 years ago.  Those who own an off-on-the-edge postage stamp pay little or nothing (whether they've put a cottage or castle on that little lot.).

I understand that you're trying to solve a local problem, but the underlying mess created by Prop 13 needs to be corrected.

Taxing sales drives sales out of town.  That burdens hardworking people who own and work in the shops that sell taxed goods in your community.  (It probably won't hurt the landlords much.)  Wage taxes are no better.  Building taxes ditto.  We shouldn't use them!

In the 1870s, a Tennessee businessman wrote to his governor,

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.

Your town needs to make it clear to your state that Proposition 13 forces you to do stupid things.  Jon Coupal and his fellow Prop 13 supporters are not working to make California better for ordinary people.  They have something else in mind.

There are a thousand hacking at the leaves.  Go to the root of the problem and eradicate it.  Prop 13 is the root of this one (and many others).  It has forced California's towns into dishonest assessments and put a low cap on what is arguably the wisest, most just tax ever proposed (land value taxation).

It was a California newspaperman, Henry George, who saw most clearly and wrote most eloquently on this topic.  Look for his 1879 book, "Progress and Poverty," written in San Francisco.  You can find a modern abridgment online at http://www.progressandpoverty.org/ and more about him and his ideas at http://henrygeorge.org/ or the URL's below. (For example, the board game Monopoly is based on The Landlord's Game, which someone developed circa 1902 to teach the wisdom of George's ideas.  It came with 2 sets of rules, one similar to the game we play today, and another called the "prosperity rules."  Dull game, but sustainable society!)    Prop 13 is the antithesis of what George's analysis showed was the way to a good life for ordinary people.

Tax property, not people, for a fairer society

The UK Guardian had an article of this title today.

It begins,

Amid all the talk of rebalancing the economy, there is little mention of the most powerful lever the government could pull to generate growth, which involves a switch from taxing income to taxing wealth.

It is a subject that tends to get little coverage, mainly because its supporters are considered on the fringes of the political spectrum. Ultra-lefties support wealth taxes for obvious reasons. Ultra-capitalists support them because they understand that allowing the rich to ring-fence much of the nation's assets and protect the mechanisms that allow values to increase without any serious government interference robs their children, and everyone else's, of any incentive to work harder.

Skipping ahead,

What they are all talking about is the adoption of a land value tax. Purists would abolish all current taxes and replace them with an LVT that asked for a payment in line with the value of land under ownership.

Someone earning £40,000 a year would stop paying around £7,000 in income tax, £1,000 to £2,000 in VAT, £1,600 council tax and any of the transaction charges that fill the exchequer's coffers. No more capital gains tax or stamp duty on property sales or the sale of shares. Instead they would pay a fixed annual sum, to be paid monthly, on the value of their land, which could have a wide range, depending on how much the land is worth.

Move out of town and work locally, and your overall tax bill could be a fraction of its current total. Buy an expensive piece of real estate in the city centre and you would probably pay more.

and then,

Under the proper working of the council tax, increases in property values, as opposed to land values, lead to higher taxes, which is a disincentive to carry out those improvements in the first place.

Mark Wadsworth is an economist, blogger, sometime Tory Bow Group adviser and campaigner for land value taxes. He recently told Economic Voice website: "I'm an economist not a politician, and I can only repeat what all the great economists have said down the centuries: taxes on land values are the least bad taxes because they do not depress or distort economic activity, ie wealth creation. Land value tax is easy to assess, cheap to collect and impossible to evade.

"Not only that, LVT is an entirely voluntary tax: you decide how much you are willing to pay and you choose a house or a flat within that price range. Only, instead of handing over all the rent or purchase price to the current owner, the location value would go to the government."

What he means by this last sentence is that property prices would necessarily settle at a lower level because a buyer will deduct the location value, knowing they must send it to the exchequer in the form of a tax.

Yes!  Think about the ramifications of this: as a buyer, you'd be paying the seller only for the value of the house itself, not the site on which it sits, which he did not create.  A, say, 10% downpayment would be affordable to many more people, and, because one would not need to borrow from a mortgage lender to pay off the seller, that credit would be available for other purposes --- entrepreneurs could invest in the goods that would make their business work better.

The article goes on to report that the OECD wants to keep the VAT too, apparently in an attempt to influence consumer behavior -- I assume by discouraging it.  

What we tax, we get less of.   What do we want less of?  Land speculation, or jobs?

Who chooses?  Whose interests do they have at heart?

A Better Way to Do Housing

Although a few neighborhoods shine, Washington area condo market still struggles - The Washington Post.

This article describes how difficult it is for condo owners to sell, since most buyers need mortgages with high loan-to-value (LTV) ratios, and FHA, Fannie and Freddie aren't lending because of rule-making on building approvals.  And many buildings prohibit renting one's condo, a particular problem in a city where people rotate from one assignment to another, often in other countries.

It suggests that people with cash offers can get good deals.

Let's consider a different approach to housing.  Suppose that, instead of paying taxes on one's wages, sales and building, taxes were shifted over to the value of the land one occupies.  Were we to collect the full rental value of the land, in the form of a tax, reducing the selling price of the site to $0 or a token amount, a home, be it a high-rise condo unit or a single-family house, would sell for the depreciated value of the structure.   A 2-bedroom, 2 bath condo of 1200 square feet would sell for pretty much the same amount wherever it is, with the buyer taking over the land value tax just as buyers now pick up the responsibility for the conventional property tax.

Buyers would need to borrow a great deal less.  A 1200 square foot condo, at a generous $100 per square foot, would sell for $120,000.  A 10% down payment on that would be a manageable $12,000.  And the $108,000 mortgage could probably be paid off in far less than 30 years, incurring much less interest.

Relieved of taxation on wages and other income, one could afford to pay for the location one chooses, in the form of a monthly or quarterly payment to one's community.  One wouldn't expect appreciation of one's housing -- after all, it is a depreciating asset.  But assuming one's local government is providing services which others consider worth the price of the rental value of the land, one could expect to sell an attractive house or condo unit fairly quickly, and be able to relocated locally or cross-country in fairly short order.

Housing would no longer be regarded as an investment expected to appreciate.  Buyers would enter clear-eyed and realistic, and seek to find the housing that best fits their needs without trying to make an investment.

Perhaps best of all, it would free up capital.  We'd no longer be borrowing  anything to buy land, so those funds would be available for investment in buildings, equipment and other things that create jobs.   And many more of us, I think, would become investors, and would be accumulating resources to see ourselves through our retirement years.

Post Script: It occurs to me that among the first people to benefit from this measure, were it to be enacted in Washington, DC, would be our incoming congressmen, senators and their aides, who could afford housing, whether they were coming from a rich district or a poor one, whether they had tremendous fortune, or barely enough for a down payment.  They could afford their own home, without living with roommates on C Street, or sleeping on their congressional couch and showering down the hall, as some impecunious or loudly frugal members of Congress choose to.   And they would become conscious of how much of the cost of living in a city is payment for the location itself -- which should benefit all of their constituents, be they in blue counties or red ones.   (And it might be interesting to look at how many blue cities there are.) 

Thinking about taxes and jobs

AN IMPORTANT DIFFERENCE

Man cannot profit from owning capital without using it, which means to employ labor. Man can profit from owning land without using it, which means unemployed labor. A low tax on land will not add one foot to the State; a high tax will not drive one acre away. A low tax or no tax on capital will bring to the State the means of developing its resources and employing its labor; a high tax will drive capital away and leave unemployment.

Which is your town/city/county/state/nation going to do? Will she listen to the land speculators, and lower the taxes on vacant land? Or will she give heed to the business men and farmers, and lighten the taxes on industry? Much depends upon her decision.

 

adapted from Tax Facts, January, 1928.

Think about the unused and underused land within the borders of your town or city.  It is not neutral.  It is a drag on your economy and contributes nothing, whil the owner sits and waits for someone to meet his price.  It is held out of use to create an unearned windfall for its owner. 

We ought to examine our tax policies for the incentives which make it possible for some owners to put the land in their portfolio to little or no use.   I'm not concerned with land of genuinely little value, but with land served by infrastructure that we-the-people have taxed ourselves to provide and maintain.  We accord landholders a privilege in taxing them but lightly, month in and month out, on the value of their holdings.  (At the same time, we make a big mistake by taxing the improvements and "personal" property, including vehicles and business equipment, of those who have improved their land to make it useful and productive.  I am reminded of Enoch Ensley's important statement:

NEVER TAX ANY THING
THAT WOULD BE OF VALUE TO YOUR STATE,
THAT COULD AND WOULD RUN AWAY, OR
THAT COULD AND WOULD COME TO YOU.

Our elected representatives ought to be reminded of that, and then asked to ponder how to implement it.  I commend to their attention Fred Foldvary's article "The Ultimate Tax Reform."

What should we tax?

Yet another from Tax Facts, this from March, 1927.

TAX DISCRIMINATION

To say that a tax is inequitable, because one kind of property is taxed at a higher rate than another kind of property, is to beg the whole question at issue. Equity demands that the cost of government be laid upon citizens in proportion to advantages derived by citizens from government.

To tax one miller more than another miller having the same investment would be unjust discrimination. But if one miller got power from steam of his own plant, while the other got power from a water fall, the latter's tax should be greater than the former's tax in order to place them on an equality before the law.

To tax a business man with a hundred thousand dollar investment the same as a land speculator with a hundred thousand dollar lot is unjust discrimination because the two investments are dissimiliar in nature and they respond differently to the tax law.

Thus, a factory deteriorates, the machinery wears out and becomes obsolete. The owner must constantly give it care and expend labor on it. The land speculator, on the contrary, gives his land no care, and he employs no labor. Yet the factory grows less in value with time, while the land increases in value. Manifestly it is unjust to tax these two citizens the same. One citizen enjoys no value but what he himself creates, while the other enjoys a value that the community has made.

If the community is to render justice to all its members it must vary its tax burdens to equalize the advantages they derive from the services rendered by the community.

 

Riches from real estate: cui bono?

As you read this one, think about the effect of California's Proposition 13, which caps the annual property tax at 1% of the assessed value (rising by no more than 2% peryear, even when land values are rising much faster), and requires the state and cities and counties to rely on sales and wage taxes.

Think, too, about what the effects of so-called "property tax relief" really are.

This comes from Tax Facts in November, 1926 --- fifty years before Prop 13, and eightly years before the crash it produced..

BUY REAL ESTATE

The real estate editor of the Los Angeles Times does his bit in boosting the city in this way:

Fact and Comment solicits your indulgence and again advises you to buy real estate. Your attention Ib called to the sale of the northeast corner of Wilshire and Hauser boulevards last week. Bought scarcely two years ago for $36,000, it turned last week for $100,000.

"No plans were made public for the improvement of the property," says the report of the deal. "We contemplate no immediate development," the buyers of the corner assert, "we consider the deal a bargain and we thought this time excellent for buying."

To add to its impressiveness, the real estate editor continues:

There is food for a little serious thinking, Mr. Wise Investor. When the professional crepehanger and the wet-blanket artist cry "Business is bad," that is a signal to  —  buy some real estate.

There you have it, the quick and simple way of building up the community: buy real estate. Never mind about putting it to productive use. Let someone else attend to that. Just buy it and hold it. It will enrich you. And if it enriches you, a citizen, it enriches the community.

Ah, but does it? The second man who sold the corner mentioned by the real estate editor is nearly three times as rich as he was two years ago, it is true; but how about the man who wishes to use that corner?

Two years ago the man who wishes to use that corner would have had to pay $6.00 a day just for the site upon which to set his building. Today he would have to pay $16.00 for the same privilege. The owner of the land might be enriched to the extent of sixteen dollars a day, but what of the public?

When the cobbler makes a pair of shoes, and the tailor a coat, each has bettered himself, and the community has been enriched to the extent of a coat and a pair of shoes. But when the speculator buys a corner for $36,000 and sells it in two years for $100,000, he may have trippled his own wealth, but what of his fellow citizens? The corner is still the same vacant lot.

Holding land idle may or may not enrich the holder. It does not enrich the community. Only the user of the land adds to the wealth of the community. One man invests $36,000 in a lot; another puts $36,000 in a building on the lot; a third stocks the building with a $36,000 consignment of furniture.

In two years the lot is worth $100,000; the building is worth $36,000, less depreciation; and the furniture is the same. Yet the community taxes all this property alike.

The speculator with his $100,000 can now buy another $36,000 lot, erect a $36,000 building, and stock it with a $36,000 consignment of furniture. But will he? Experience has taught him that only land grows in value. A building adds to the value of land, but not to itself. A stock of furniture adds to the value of land, but not to itself or to the building.

"No," the speculator will say, "the community lays the same tax burden upon property that does not increase in value, as upon property that does. I'll buy three $36,000 lots, and in two years I'll have $300,000."

Is it any wonder that the speculators among the California Realtors in their state convention at Del Monte condemned the "tax relief plan'' that would equalize in some degree the burden on industry by shifting some of the taxes on business and homes and farms to the land speculator?

It remains to be seen what the farmers, home owners and business men will say.

Public Ownership of essential utilities

Where I live, an Australian bank owns the city water system, a stockowner electric company has the power franchise, Cablevision has the cable franchise -- and a lot of money that could profitably be recycled locally gets sent out of town.  (We do still own the sanitary sewer system.)

There was a time when these franchises were given to local entities, or held by the community.  Then we permitted them to be privatized, and revenue that was once recycled locally now leaves.  (Google "The City for the People" for more about this.  It showed, among other things, that residents of cities where the utilities were publicly owned paid less for their utilities and workers in those utilities were better paid.)

The short article quoted below makes an interesting point.  I'll preface it by quoting California Georgist Harry Pollard, who says that it would be better to collect land rent and throw it into the sea than not to collect it at all.    This shows why.  It comes from Tax Facts, 1926:

LAND SPECULATOR'S PARADISE

Arthur Brisbane has discovered that Ponca City, Oklahoma, a town of 15,000 population, is free from taxes. Through ownership of the power, light and water departments the city derives sufficient revenue to dispense with all taxes.

But is that an unmixed blessing? Police and fire protection, schools, etc., are so desirable that people will move to places where they may be had. Since no one can enjoy these government services without occupying land, the people will bid against each other till they force the price up to a point where it equals the value of the service. If the people know they will not have to pay taxes they can and will pay that much more for the land.

What a bonanza for the land speculator! He can add to his price what buyers save in taxes.

Economic rent, or land value, attaches to land whether or not the land is taxed. The amount of this land value depends upon the number and kind of people in the community, and must be paid in any event. Should the government take sufficient taxes out of this land value to pay expenses, two results will follow:

1. The user of land will pay more than he would if the owner kept it all, as in Ponca City.
2. The taking of this tax from the land owner will add to the cost of holding the land idle, and since it falls on all valuable idle land, it will make speculators more willing to make terms with land users.

When the city must pay a stockholder utility for the lights on the streets, who benefits?   The taxpayers spend more than they would otherwise need to, and instead of getting electricity at the lowest price, pay a price that benefits the shareholders, few of whom live locally -- and if you've read the "stock ownership" pages linked at left, you know how concentrated stock ownership is, based on the Federal Reserve Board's Survey of Consumer Finances data.   (A fine example of trickle-up economics.)

Local communities which own their own utilities would be more likely to care about using clean energy.  They'd be creating secure local jobs, and good management would benefit the local community.   Accountability.

 

Sharing the burden of the cost of providing public services

Here's another from a 1926 issue of Tax Facts, a California-focused, business-focused, Single Tax monthly.  While I find the intended focus of the article spot on, what caused me to share it here was the horse-grist-stone analogy in the final paragraph.   

A SURE THING

Buy real estate in Southern California, says the real estate editor of the Los Angeles Times. Use common sense in making the purchase. Hold on to the property. It will make you independent and your children wealthy.

Fifty-nine years ago Alonza E. Horton bought 960 acres for $265, think of it, at the rate of 27 cents an acre. That . property today is the heart of the San Diego business section. It is worth something like $50,000,000.

The editor goes on to say that since Mr. Horton bought his 960 acres of land at 27 cents an acre millions of people have come to Southern California to live, and the same inducements that brought them will bring millions more. "So don't delay," the editor says, "but buy Southern California real estate while you have the opportunity." And he adds; "It is the fellow with the foresight and the decision to back his jugdment that gathers in the shekels."

This is the counsel of the go-getter. Southern California is an attractive place. Many people have come here. There are indications that many more people will come in the next few years. All these people must have land upon which to live, to do business, and to raise crops. They may bring with them all manner of goods and supplies, but they must use the land that is already here.

Hence, buy that land now, says the realtor, and sell it or lease it to those who come after. To the man who comes to Southern California next year, fix the price a little above the price of this year. Next year add again to the price; the year after, increase it again, and so on, always adding all you dare, short of an amount that will drive the builder away. This is the way the "fellow with the foresight and the decision to back his judgment" reaps the wealth of soil and climate that nature supplied in such perfection. When Mr. Horton came to San Diego in 1867 he bought land at 27 cents an acre. But the man who wants to use that same land today must pay fifty thousand dollars an acre.

This is the law and custom. We must have permanent possession, in order to secure the best use of land. But is there any reason why we should tax alike lands that increase in value so fabulously, and buildings and goods that deteriorate with age?

Some governments do not tax all property alike. Pittsburgh, Pa., taxes machinery and goods not at all, and taxes buildings at one half the rate of land. Mr. Moody, the far-seeing assessor of San Diego, taxed buildings at less than half the rate of land, until he was enjoined by the court. His policy was very popular with the people — business men and residents — excepting a grouchy land owner who evoked the aid of the courts.

When the assessor was compelled to follow the letter of the law there was great distress among the builders of San Diego. Men had built larger and finer buildings because the taxes were lighter on improvements than on land. So great was the burden when the court ruled that they be taxed alike that efforts were made to have the legislature legalize the practice of the far-seeing assessor.

It will come. What has been done in Pittsburgh can be done in San Diego, Los Angeles and San Francisco. It may take time. For years the countryman balanced his grist on the horse's back by putting the meal in one end of the sack and a stone in the other. One day it occurred to him that he could secure the same result by dividing the meal — and save the horse the weight of the stone.

Realtors are merely human when they advise people to buy land on speculation. It is their business. And the man who buys land, and lets it lie idle, while labor and capital build up the community around it, he, too, is human, and is acting within the law.

But what shall be said of the voters who control the laying of taxes? Are they as careful in looking into the tax laws as they are in watching their business affairs?

In the old days when government was simple and taxes were light it did not so much matter, but now it is different. There is hope. The voters will learn to divide the meal, and save the weight of the stone.

Lizzie Magie's 1902 commentary on The Landlords' Game, on which Monopoly is based

Digging through primary sources can provide some great thrills.  I stumbled onto this article about The Landlords' Game in the Autumn, 1902, number of The Single Tax Review (then a 64-page quarterly, later more frequent) .   It was the Landlord's' Game which was later revised to create the board game Monopoly.   As I've written earlier here, the Landlords' Game (probably in later editions than what is referred to here) came with 2 sets of rules, one which would create widespread prosperity, and the other which would create a winner-take-all situation.

Magie's comments are quite relevant to understanding the game of Monopoly, too:

from The Single Tax Review, Autumn, 1902

THE LANDLORDS' GAME.

AN INTERESTING INVENTION OF A YOUNG LADY IN WASHINGTON BY WHICH CHILDREN AT THEIR PLAY MAY BE TAUGHT THE TRUE LAWS OF ECONOMICS.
Miss Lizzie J. Magie, a single taxer of Washington, D. C has invented an ingenious game, played with checkers and dice as is parcheesi, and thus describes it for the Review:

"It is a practical demonstration of the present system of land-grabbing with all its usual outcomes and consequences," says Miss Magie. " It might well have been called the 'Game of Life,' as it contains all the elements of success and failure in the real world, and the object is the same as the human race in general seem to have, i. e., the accumulation of wealth.  Representative money, deeds, mortgages, notes and charters are used in the game; lots are bought and sold; rents are collected; money is borrowed (either from the bank or from individuals), and interest and taxes are paid. The railroad is also represented, and those who make use of it are obliged to pay their fare, unless they are fortunate enough to possess a pass, which, in the game, means throwing a double. There are two franchises: the water and the lighting; and the first player whose throw brings him upon one of these receives a charter giving him the privilege of taxing all others who must use his light and water.

"There are two tracts of land on the board that are held out of use—are neither for rent nor for sale—and on each of these appear the forbidding sign: 'No Trespassing. Go to Jail.' One of these tracts of land (the largest on the board) is owned by Lord Blueblood, of London, England, and represents foreign ownership of American soil. A jail is provided for any one  who trespasses upon this land, and there the unfortunate individual must linger until he serves out his time or pays the required fine. 'Serving out his time' means waiting until he throws a double.

"Before the game begins, each player is provided with a certain amount of cash, sufficient to pay all necessary expenses until he is well enough along in life to earn his living. Should any one be so unlucky, or so reckless and extravagant, as to become 'broke,' there is a nice little poor house off in one corner where he may tarry until he makes a lucky throw or until some  friend takes pity on him and lends him enough to set him on his feet again. And here is where he generally gets 'soaked,' for the other players, taking advantage of the unfortunate one's necessities, demand an enormous rate of interest which the impecunious individual must pay before he can complete his round and get his wages.
 
"The rallying and chaffing of the others when one player finds himself an inmate of the jail, and the expressions of mock sympathy and condolence when one is obliged to betake himself to the poor house, make a large part of the fun and merriment of the game.

"Each time around the board represents so much labor performed, for which so much wages are paid. When a player has been the rounds ten times he retires from his labors, although he still remains in the game, which is not finished until the last player has made his tenth round. It takes forty moves to make a round and there is in each round one little black-bordered spot marked 'Legacy,' and whenever a player stops on this he receives a cash legacy. In each round there are three spots marked 'Luxury,' and these the player may indulge in or not, according to his inclinations or finances, but each luxury purchased counts the player so much more at the end of the game.

"General directions for playing the game accompany this description, but it is difficult to make a set of rules that will cover all contingencies since no two games are alike. The combination of circumstances are so many that almost every time the game is played new situations are brought out. Thus it is a game that is always interesting—never monotonous. It was the original intention of the author simply to work out a demonstration of how the landlord gets his money and keeps it, but while doing this there gradually developed a game which has proven one of amusement as well as of instruction and one which has attractions for both old and young.

"Children of nine or ten years and who possess average intelligence can easily understand the game and they get a good deal of hearty enjoyment out of it. They like to handle the make-believe money, deeds, etc., and the little landlords take a general delight in demanding the payment of their rent. They learn that the quickest way to accumulate wealth and gain power is to get all the land they can in the best localities and hold on to it. There are those who argue that it may be a dangerous thing to teach children how they may thus get the advantage of their fellows, but let me tell you there are no fairer-minded beings in the world than our own little American children. Watch them in their play and see how quick they are, should any one of their number attempt to cheat or take undue advantage of another, to cry, 'No fair!' And who has not heard almost every little girl say, 'I won't play if you don't play fair.'  Let the children once see clearly the gross injustice of our present land system and when they grow up, if they are allowed to develop naturally, the evil will soon be remedied."

 To read more about The Landlord's Game, explore the two "Monopoly and the Landlord's Game" tags in the cloud (I can't seem to meld them into a single one!)  It is quite an interesting story.

Financing the Subway

Under our present system of taxation the wages of the worker are taken to run the city by the tax on the home being put in your rent. The increase in land-values that would run the city goes to the land speculator. Example and Proof:

Suppose the people build a twenty million dollar subway. The land increases twenty million dollars in value; the increase would pay for the subway, but it goes to the land-speculator and your wages are taken to pay for the subway by a tax on the home which is put in your rent.

 

-- from The Single Tax Review, March-April, 1909

 

And 100 years later, we're still financing subways from revenue sources other than Land Value Taxation.  Slow learners, aren't we?

 

Our System of Taxation

Stephen Colbert and Jon Stewart would have fun with the names in this one ...

from The Public, of March 16, 1901:

OUR SYSTEM OF TAXATION.

Old Sam Head made his millions running department stores. His method was simple. He would buy a building or take a long lease in the best part of a town. Then he would divide it up, allotting the front to fancy goods, the center to dry goods and the rear to groceries. He would entice merchants to hire of him sections of the store. He furnished light, heat, elevator service, detectives, caretakers for the building and cleaners for the aisles. For the best situations he charged the highest price, but being a good natured fellow, he gave a peanut man the privilege, for nothing, to sell his wares on the sidewalk.

One day he suddenly disappeared, and the boys took up the business. Wood Head, who was an observing fellow, took a point from the ways our cities are run and reversed the old man's methods. He charged a fee for bringing goods into the store and appointed officers who received the dues as they passed the door. Some of these fees were on the value of the goods, and some of them a fixed price for each article. He argued that, although this required a considerable number of officials, the customers who purchased goods never noticed that there was such a change, and the income derived from it relieved the seller of the goods from a part of his fees for the ground rent.

In addition to this, it induced some of the storekeepers to start making manufactures of their own, which seemed to make a demand for floor space; yet somehow, the receipts fell off and the store did not seem to be prospering.

Another brother, Bill Head, said the best thing to do would be to charge every customer who came to do business a fee based upon his estimated income. Customers seemed to object to this, and would never give their incomes correctly. They were dishonest. But Bill insisted that the principle was a just and fair one. He said "they pay according to their abilities."

Dick Head said he believed in internal revenue, and instituted a tax on all corsets worn in the store. He said corsets were injurious, anyhow. This tax was constantly evaded, however, by unscrupulous women, who said they wore only waists. The young men especially objected to being examined as to whether they wore corsets. Sharp Head, who was a far-sighted sort of chap, seeing that his brother's plans were not working as well as they might, and that a change in the management was bound to come, induced them to give him a lease (which he duly recorded) of the elevators, and charged everybody for going up or down. He put in an improved elevator, and pointed out to the firm what a public service he had done.

Big Head, taking a point from him, got a similar franchise for supplying light, and as he had not the capital to put in the electric lights that were needed, he got an agreement out of the concern that they would give him bonds for an amount sufficient to cover the actual cost of putting in an electric light plant, and he should charge a moderate fee for the service.

The custom of the store, however, seemed to be dwindling, and it was necessary to devise some new methods of raising revenue. A conference of the brothers decided that a proper source would be a small charge for the water in the drinking fonts and the lavatories. By a happy inspiration, the firm also sold outright the exclusive privilege of supplying heat to the building, for which every storekeeper had to pay in accordance with the amount of floor space he occupied. This brought in a large sum which kept the firm going for some time. Nevertheless, the business declined.

Wood Head now admitted that his tariff on goods coming in was not working well, as it did not bring enough revenue. He claimed that it had done its work by establishing industries, and that it would now be well to establish licenses to do business. He urged that those departments which sold soda water and other things that people did not need, ought to pay for the privilege; that if customers did not wish to be taxed, they should not buy these things.

Bill Head stuck to his income tax; but as it was very difficult to collect, he consented to modify it so that only the merchant should pay it. On these, however, he made them swear to the amount of their profits, or rather for the most part, swear that there were none.

Wood Head said that, in his opinion, Sharp and Big were making all the money that was in the business, and that the wise thing would be to charge them a fee for the privilege they had.

These plans, however, were of no avail, and the brothers despairingly concluded that there could be no natural and scientific plan of taxation. and made an assignment. —Bolton Hall, in Johnstown (Pa.) Democrat.

The New Nobility

"So long as individuals and private corporations have the power to monopolize natural resources or public utilities they will be the masters of all who do not share in the monopoly. The coal barons, the railway kings, the steel magnates and the whole piratical fraternity of multi-millionaires all subsist, like the regal plunderers of Europe, upon the fruits of privilege. They are an untitled nobility. The sunshine scintillates upon their gilded palaces in every great city of our land; but in the same cities there are dens of squalid misery and want, where sunbeams never penetrate, and where no kindly ray dispels the darkness of despair that lurks within."

In the 21st century, it is the owners of our privately held businesses and of corporate stock who fill this role.  See "stock ownership" in the topics at left for more detail.    And those who have studied the classical economists will recognize that natural resources fall into the category known as "Land."

The cited paragraph is an excerpt from a longer letter in "The Public" of June 9, 1900.  It seems particularly timely given the reading aloud the U.S. Constitution in the House of Representatives, upon opening the new session of Congress today.

THE NEW NOBILITY.

The constitution of the United States provides, in article 1, section 9, that—

no title of nobility shall be granted by the United States.

Why not?

The "Federalist" does not tell us, and there is little said of it in the constitutional debates. Some of the members, indeed, spoke of creating a peerage, but said that such a thing could not be thought of, because of the deep-seated prejudice prevailing against a hereditary nobility. According to Yates's Minutes, Charles Pinckney said:

There is more equality of rank and fortune in America than in any other country under the sun; and this is likely to continue as long as the unappropriated western lands remain unsettled.

This statesman must have believed as Thomas Carlyle did, when in "Past, and Present," book III., chapter 8, that great Englishman wrote:

It is well said, "Land is the right basis of an Aristocracy;" whoever possesses the Land, he, more emphatically than any other, is Governor, Vice-King of the people.

Conversely stated, Mr. Pinckney's proposition is that with the valuable free lands of the west all taken, there would be danger of a constantly increasing tenant class, keeping pace with the growth of land monopoly and resulting finally in a landed aristocracy on the one hand and complete serfdom on the other; for population must increase, while the area of land cannot. But in view of the vast area of unoccupied land in the west at that time, its complete settlement seemed so remote a contingency that it was scarcely dreamed of by the members of the convention, and had no weight in their deliberations.

They thought it advisable, nevertheless, to put in a clause against the granting of titles of nobility. That clause was a part of the Virginia resolutions. By inserting it, the framers of our constitution showed their aversion to privilege, and their determination that whether privilege existed or or not the government should confer upon its possessors no honorary distinction. But by the use of that phrase they no more rendered their country exempt from the evils of a hereditary aristocracy than they would have made inocuous the serpent's venom by enacting that all snakes shall be called humming-birds. A title is but a name— the rank is but the guinea's stamp.

Privilege does not depend for its existence upon honorary distinctions. Mere titles do not create privilege, although privilege does ultimately create titles. Titles of nobility are but the emblems of the power behind them. Thy are dangerous only because of the "nobility" which they imply. It is not the duke who is dangerous, but the dukedom—the social condition of which the duke is but a symptom. The real value of such a title is in the power which it represents.

Such power is always based upon privilege—upon rights accruing solely to the holder of the title, to the exclusion of others not so favored; in short, it is based upon monopoly. From time immemorial the granting of noble titles has, with few exceptions, been either in recognition of power already in possession, or else has been accompanied by a grant of power—usually a grant of lands— commensurate with the supposed dignity of the title.

So long as individuals and private corporations have the power to monopolize natural resources or public utilities they will be the masters of all who do not share in the monopoly. The coal barons, the railway kings, the steel magnates and the whole piratical fraternity of multi-millionaires all subsist, like the regal plunderers of Europe, upon the fruits of privilege. They are an untitled nobility. The sunshine scintillates upon their gilded palaces in every great city of our land; but in the same cities there are dens of squalid misery and want, where sunbeams never penetrate, and where no kindly ray dispels the darkness of despair that lurks within.

According to Charles B. Spahr, Ph. D., author of a treatise on Distribution of Wealth, one percent of our families own more wealth than do the whole of the remaining 99 percent! Now, who are the favored one percent? Men like John D. Rockefeller and Andrew Carnegie; men who own more than any individual could produce in a dozen centuries.

And are they not princes, lords, kings? They have no titles, to be sure. But what could a paltry title add to the man who controls, for instance, the oil-producing lands of the United States? They have no coronets, but they possess that without which the coronet is but a barbaric bauble. The man who bows to the throne really makes his obeisance to the power behind the throne. The king's word, the king's name, is but "as sounding brass or a tinkling cymbal;" the king's power is everything. Crowns, scepters, robes of ermine and cloth of gold—all these are nothing; nothing but hated symbols. If the kingly power remain, what boots it though we lack the kingly name? A king by any other name is just as bad. The powerful Earl Warwick, known to history as "the king-maker," was no more a king-maker than one Marcus A. Hanna, of Ohio; and if Hanna really wore the crown which he sometimes wears in the newspaper caricatures he would be no more dangerous than he is today. And what makes him dangerous? The privileges which he and his kind possess.

The real groundwork of an aristocracy is not in the unequal distribution of wealth. It lies farther back than that. We must seek it in the causes which lead to unequal distribution. It is in the inequality of opportunity to produce wealth. Equality of opportunity begets equality of condition. Whether you restrict the opportunities of one class, or grant special privileges to another, it matters not; the result is the same., and that result is seen in the class distinctions which inevitably follow in the wake of privilege.

As there may be serfs without shackles, so may there be nobles without titles. We have both in America today. The thing which our fathers greatly feared has come upon us. We are face to face with as great a crisis as ever threatened any republic since Rome first trembled at the glance of Caesar. The final struggle may not come this year, nor next, but it will come; and when it does, the American people will exclaim, in the words of the immortal Frenchman, "Tyrant, step from thy throne and give place to thy master!"

The ballot is the bloodless guillotine of the new revolution. It is a weapon mightier than the bayonet if used in time. Let us use it while it is still at our disposal. Put a true man in the white house, and the work of reform will be more easily accomplished. Inasmuch as the barons of the United States today, unlike those at Runnymede 800 years ago, are seeking special privileges for themselves instead of magna chartas for the people, it should be our first duty to remove from the presidency of this nation one whose instability of character and inordinate love of powerequaled only by his incapacity to exert it—mark him with peculiar distinctness in these respects as the American ectype of King John.

What Tolstoy Taught: Human Rights

In a recent column in the NYT entitled "Description is Prescription", David Brooks made references to Tolstoy, and it sent me looking to see whether a book I remembered was available via Google Books.  The book was written in 1905 by Bolton Hall, and it is entitled "What Tolstoy Taught."  Its final chapter, "Human Rights," follows:

(Tolstoy proclaimed the law of love as enunciated by Christ; the political rights as enunciated by Thomas Jefferson; the economic rights as announced by Henry George: the two latter as amplifications of the first; all being essential to man's earthly welfare. Tolstoy's philosophy was progressive. At first he saw that the law of love was necessary; then he recognized the necessity of equal political rights; next he recognized that without economic justice these remedies were futile, and he accordingly embraced the philosophy of Henry George, as evidenced by the following article addressed to the Russian people.— Ed.)

A number of suggestions have been made as to how to divide, in the most just manner, all land among the workers, but of all these only the one made by the late Henry George appears to me to be practicable.

The property right, Henry George wrote in his book about the single tax, is founded not on human laws, but on the laws of God. It is undeniable and absolute, and everyone who violates It, be it an individual or a nation, commits a theft.

A man who catches a fish, who plants a tree, builds a house, constructs a machine, sews a dress or paints a picture, thereby becomes the owner of the results of his own efforts — he has the right to give them away, to sell them or to leave them to his heirs. As the land has not been created by us, and only serves as the temporary residence of changing generations of human beings, it is clear that nobody can own the exclusive right to possess land, and that the rights of all men to it are equal and inalienable.

The right to own land is limited by the equal rights of all others, and this imposes upon the temporary possessor of land the duty to remunerate society for the valuable privilege given him to use the land in his possession.

When we impose a tax upon houses, crops, or money in any form, we take from members of society something which by right belongs to them, we violate the property right and commit a theft in the name of the law; while when we impose a tax upon land we take from members of society something which does not belong to them, but to society, and which cannot be given to them except at a detriment to others. We thus violate the laws of justice when we place a tax on labor or the results of labor, and we also violate them if we do not levy a tax on land.

Let us, therefore, decide to stop levying all taxes except the tax on the value of land, regardless of the buildings erected or the improvements made on it, but only on the value which natural or social conditions give to it.

If we place this single tax on land the results will be these:

1. The tax will relieve us of the whole army of officials necessary to collect the present taxes, which will diminish the cost of government, at the same time making it more honest. It will rid us of all the taxes which lead to lying, to perjury, to frauds of all kinds. All land is visible, and cannot be hidden, and its value is fixed easier than that of any other property, and the single tax can be determined at less expense and less danger to public morals.

2. It will to a great extent increase the production of wealth, doing away with the discouraging tax upon labor and thrift, and it will make the land more accessible to those who want to work or improve, as the proprietors, who do not work themselves, but speculate in its increasing value, will find it difficult to keep up such expensive property. The tax on labor, on the other hand, leads to the accumulation of immense fortunes in a few hands, and the increasing poverty of the masses. This unjust division of wealth on one side leads to the creation of one class of people who are idle and corrupt, because they are too rich, and the creation of another class of people who are too poor, and thus doubly delays the production of wealth. This unjust division of wealth creates on one side terrible millionaires, and on the other side vagrants, beggars, thieves, gamblers and social parasites of various kinds, and necessitates an enormous expense for officials to watch these — policemen, judges, prisons and other means which society uses in self-defense.

The single tax is a remedy for all these evils.

I do not mean to say that this tax will transform human nature, for that is not within the power of man, but it will create conditions under which human nature will grow better instead of worse, as under the present conditions. It will make possible an increase of wealth, of which it is hardly possible to form an idea. It will make undeserved poverty impossible. It will do away with the demoralizing struggle for a living. It will make it possible for men to be honest, just, reasonable and noble, if they desire to be so. It will prepare the soil for the coming of the epoch of justice, abundance, peace and happiness, which Christ told His disciples of.

Let us suppose that in a certain place all land belongs to two owners — one very rich, who lives far away, and another, not rich, living and working at home — and to a hundred of small peasants owning a few acres each. Besides these, there live on that place some scores of people who own no land — mechanics, merchants, and officials.

Now let us suppose that the people of that community, having arrived at the conclusion that the land is common property, decide to dispose of the land according to their new conviction.

What would they do? Take all the land away from those who own it, and give everybody the right to take the land he desires? That could not be done, because there would be several people who would want the same ground, and this would lead to endless quarrels. To form one society and work all things in common would be difficult, because some have carts, wagons, horses and cattle, while others have none, and, besides, some people do not know how to till the soil, or are not strong enough.

To divide all the land in equal parts, according to its value, and allow one part to each is very difficult, and this would, besides, be impracticable, because the lazy and poor would lease their property to the rich for money, and these would soon again be in possession of it all.

The inhabitants of the community, therefore, decide to leave the land in the possession of those who own it, and to order each owner to pay into the common treasury money representing the revenue which had been decided on after appraising the value of the land, not according to the work or the improvements made on it, but to its quality and situation, and this money was to be divided equally among all.

But as it was difficult first to take this money from all those who held the land, and then divide it equally among all the members of the community, and as these members, besides, paid money toward the public needs — schools, fire departments, roads, etc.— and as this money was always needed, they decided to use all the money derived from those who had the use of the land, for public needs.

Having made this arrangement, the members of the community levied the tax for the use of land on the two large owners, and also on the small peasants, but no tax at all was imposed on those who held no land.

This caused the one landowner who lived far away, and who derived little income from his property, to realize that it did not pay to hold on to land thus taxed, and he gave it up. The other large owner gave up part of his land, and kept only that part which produced more than the amount of his tax. Those of the peasants who held small properties, and who had plenty of men, and not enough land, as well as some of those who held no land at all, but who desired to make a living by working the land, took up the land surrendered by its former owners.

After that all the members of the community could live on the land and make a living from it, and all land passed into the hands of or remained with those who loved to work it, and who made it produce the most. The public institutions flourished and the wealth of the community increased, for there was more money than before for public needs; and the most important fact was that this change in the ownership of land took place without any discussions, quarrels, or discord, by the voluntary surrender of the land by those who did not derive any profit from it.

This is the project of Henry George, which, if tried here, would make Russia wealthy and happy, and which is practicable all over the world.

 

The Case Plainly Stated

I stumbled across this document in a little book which runs to 24 pages, from 1887.  Those with an interest in Alabama history, particularly as it relates to taxation, might find that it helps explain how the 1903 constitution came about -- whose interests it sought to protect.   Consider it, too, in light of our current economic situation -- too few jobs, lots of income and wealth concentration; not enough credit available to afford housing or commercial sites.     These problems can be solved, but not in the ways we've already tried.

 

The Case Plainly Stated
By H. F. RING

PREFATORY NOTE -- This address originally was delivered to the United Labor Organization of Houston, Texas, in 1887. It appeared in full the next morning in the Houston Daily Post, and afterwards in The Standard, published at that time in New York by Henry George. Mr. George then issued it in tract form, giving it the name of "The Case Plainly Stated." Many editions of it have since been published from time to time in this country and in Europe and Australia, and it is generally regarded as one of the clearest brief statements extant of the philosophy of land value taxation as taught by Henry George in his famous "Progress and Poverty."

MR. CHAIRMAN:— The land question is simply a question as to how the use of the bounties of nature shall be best regulated and controlled. By bounties of nature I mean the coal beds, the mineral deposits, the land — all those natural elements which were not created by human industry, but which Nature has freely and abundantly provided for the use and enjoyment of all the children of men; and I propose to show how the right of capital and. labor to use these natural elements should be regulated by the government*, so as most to conduce to the happiness and well-being of mankind.

* The word "government" as used in this presentation of the Single Tax refers to the tax levying power as vested, not alone in the federal, but also and even primarily in the state, county, and municipal governments.
It is probable that a complete application of the Single Tax will be reached through its gradual adoption at first in cities, counties and states, before it is substituted for tariff and internal revenue taxation.

I am a Single Taxer, and a discussion of the land question by me can be nothing more than a mere attempt to expound the teachings of that great master of the subject, Henry George.

George, at the outset, calls attention to the marvelous improvements in the arts and sciences, the discoveries, inventions, and labor-saving machines which, within the past 100 years, have so immensely increased the productive powers of the human race. Is it not a moderate estimate to assume that on an average the labor of one man today, with all these labor-saving inventions, will produce as much of the comforts and luxuries of life as the labors of four men would a hundred years ago? And does it not follow that the average workman of today creates, by each day's labor, four times as much wealth as the average workman did a hundred years ago? George teaches that if the workman of today, on an average, creates four times as much wealth as the workman of a hundred years ago, then the services of this workman of today are four times as valuable to society; then why should not his wages of right be four times as great? Why should he not be four times as independent? Why should it not be four times as easy for him to make a living and support his family in comfort and decency?

Will any one presume to assert that this is in fact the case? On the contrary, is it not just about as hard for the poor man to make a living today as it ever was? Does he not dread the loss of a position today just as much as he ever did? George asserts that labor-saving machinery really ought to lessen the burdens of labor, to make it easier for the laborer to live, and in fact, to lighten his toil. But alas, from some apparently mysterious cause, — a cause which many comfortably well-to-do people insist is one of the unfathomable mysteries of Divine Providence, — what George claims should rightly result from inventions does not result from them. And still we are all the time making new discoveries, and year by year increasing, by means of new inventions, the productive powers of working men; yet, with the increase of population, the lot of those who produce all this wealth seems to be becoming more precarious, less independent and more and more wretched.

Who denies that under the present social system, wages tend to fall irresistibly to the point at which the wage-workers can barely subsist? This is called the iron law of wages, and all the strikes conceivable can only temporarily, and but fitfully, arrest this steady tendency. For so long as unemployed men compete for employment against the employed, wages cannot permanently advance. The worker may create quadruple the wealth, but he is not permitted to retain any more of it as his share.

WHO GETS THE WEALTH?

Now, where does this wealth go — this wealth which we now produce so much more easily and in such vastly greater quantities than ever before? What becomes of it? Who gets it? Why is it that in this age of wealth-producing and labor-saving machinery, poverty as abject and hideous as ever before seen in the history of the world abounds and increases in our midst? What is the cause of the so-called iron law of wages? Henry George has discovered it. He has pointed it out, and he has shown us the remedy. He has demonstrated beyond a doubt or question that it does not result as a fatal necessity from the nature of things, but that it is a result of violation of natural law, of a refusal on the part of society to recognize the inalienable right of every citizen of access to the bounties of nature within the territory of his country on equal terms with every other citizen of that country.

Let me now give you a short lesson in the elements of this new political economy.

Three factors enter into the creation of every conceivable kind of wealth. By wealth we mean any material thing produced by human industry which gratifies human desires. These factors are land, labor and capital. Wealth in a civilized community is produced only by means of a union or partnership between land, labor and capital. Labor does the work, capital loans the tools, and land furnishes the natural elements on which, and out of which all material things resulting from human industry are created. In speaking of land in the new political economy we never include improvements or anything which is the result of human toil. We simply mean the opportunities which land and the elements within it afford for the employment of capital and labor — we mean the raw elements as they lie on or in the bosom of the eartli, untouched by the hand of man.

Now, as before remarked, the product of land, labor and capital is wealth, and after it is produced, it is divided among these factors entering into its composition. A certain portion of it, called rent, goes to land, either directly in the form of rent or in the form of interest on the selling price of the land or of the coal bed, or whatever it is; another portion of it, called profit or interest, goes to capital for the use of tools which capital has furnished, and the balance left, after land has been paid rent and capital has been paid interest or profits, goes to labor as wages for the work which labor has done, including the labor of superintendence.

MEANING OF RENT.

Now what does rent signify as used here? Rent is the price paid for the privilege of access to the raw material — for the mere privilege of getting hold of something not created by man, on which and out of which labor and capital can produce wealth. This rent may be paid periodically, or may be paid in a lump in the form of purchase money. In either case the result will be the same. Is it not clear that in the division of wealth after it has been produced by this partnership between land, labor and capital, the more land gets for rent the less there will be left for capital and labor? Is it not quite as plain as A B C that the more it costs capital and labor to get hold of these natural elements, the coal beds, the mines, the water fronts, the land — the gifts of nature which a kind providence has provided for the equal use and enjoyment of all — the less there will be for labor and capital to divide between them?

In the new political economy we must never confuse land with capital. One is never the synonym of the other. Land, as before stated, is simply the natural opportunity, exclusive of improvements or anything done to it by man. Capital is something that has been made by man, like a machine for instance, which is useful in the production of wealth. It is wealth used to produce more wealth.

LABOR AND CAPITAL PARTNERS.

But someone asks: Suppose the capitalist who is using the coal bed or using this natural opportunity, whatever it may be, is also owner of it. Where then does your partnership between land, labor and capital come in? We answer just the same as before. A sum equal to the interest on the market value of the coal bed (independent of the machinery, excavation work, etc.) is in such cases a factor of rent. The owner, in addition to profit or interest on his capital, as before defined, must also take from the wealth produced a sum equal, approximately, to interest on the market value of the coal land, otherwise he would sell out and quit. It is evident that the more money the owner is obliged to invest in purchasing the coal bed, for instance, the greater must be the sum which he takes out of the wealth produced to cover interest on that investment, and hence such interest money is simply rent paid for the use of a natural element, for the privilege of access to one of the bounties of nature. Therefore, is it not equally plain in this case that the more paid for this privilege of use, the less will remain out of which labor can get wages?

A few years ago we read in the newspapers of a great boom in the vicinity of Birmingham, Alabama. We were exultingly told that the lands containing coal beds and mineral deposits in northern Alabama had gone up in value from $75,000 to $50,000,000 in the space of six years. What does this signify? It means that when capital and labor shall attempt to utilize these coal beds and mineral deposits, when capital and labor shall unite together, the one to furnish the tools, the other the labor, with which to produce wealth out of this raw material, then will a set of landlords step forward and block the enterprise with a demand for $50,000,000 for the mere right of access to these free gifts of nature, or in lieu of it the payment of $3,000,000 a year as tribute money, that being the interest of $50,000,000 at six per cent.

There lie the coal beds and mineral deposits untouched by man, fresh from the hands of the Creator, intended by Him, if He is the just, benevolent Being whom we have been taught to worship, for the equal use and enjoyment of all His children, and yet our laws say that capital and labor must pay a few forestallers $3,000,000 a year for the privilege of applying the hand of industry to these elements.

And after this blackmail has been paid, how much will there be left for the wages of labor? The answer is, just as little as labor can ordinarily subsist upon. Why? Because this monopolization of the gifts of nature going on, not only in northern Alabama, but everywhere else, enables capital to drive a hard bargain with labor. For this reason, and this alone, they can't deal with each other on equal vantage grounds. Suppose labor objects and says to capital: "I'll not accept the pittance you offer." Capital replies: "All right, go elsewhere." And so labor starts out to get work for himself, and what does he find? Here he is, living in a country capable of raising food for ten times its present population, and he finds four-fifths of the land untilled or but partially cultivated. He finds four-fifths of the coal beds and mineral deposits unused. He finds vacant land and unused lots on every side. He goes to New York City even and he finds there within its corporate limits almost one-third the area of that city vacant, unoccupied, and unused, although there are miles and miles of tenement houses, in which men and women and innocent children are packed and crowded like maggots, as though there wasn't ample room in the city for the comfortable housing of every human being in it. He finds unused natural elements all around him wherever he goes, sufficient to give employment and support in abundance to tens of millions of happy families.

But now suppose labor attempts to make use of any of these unused natural opportunities? Suppose he concludes to go to work for himself upon a piece of vacant land in the suburbs of a city, for instance, where labor could be applied to the greatest advantage. What happens? An individual comes along and waves a title deed, and orders him off the premises. He finds that all these unused natural opportunities are owned by individuals and claimed as private property. He finds himself frustrated at every point. He finds that he can't go to work anywhere without paying blackmail to the owner of some natural element for the mere privilege of working and so he strikes back to northern Alabama and takes off his hat to Capital and bows very low and says: 'Please, sir, give me a bare living and I will be your slave."

And that is about all that he does get, and that is all he ever will get under the present system of land ownership, though you may strike and boycott and potter about graduated land taxes, graduated income taxes, and graduated nonsense until doomsday.

THE GREAT PARASITE.

With advancing population the greater becomes the demand for natural opportunities and the higher the prices which can be extorted for the privilege of using them. As population increases, the town lots, the coal beds, the mineral deposits, the water fronts, the land, go up in value, and so goes up also the amount of tribute money which labor must pay for access to them, for the privilege of employment. The more of the products of industry which go for the payment of this constantly increasing tribute, the less and less will grow the share allowed the laborer and the more dependent and the more wretched will his lot become.

Here in Houston today, suppose Enterprise has $50,000 to invest in the paper mill business, a sum barely sufficient to put up the building, buy the machinery and carry stock. He finds a beautiful site for his mill on the banks of the bayou. It is a vacant lot. The hand of man has never been applied to it, and it stands there now just as it stood when the Indian roamed over the site of this city. The owner of that block, however, thinks he can make Enterprise pay him $20,000 for the privilege of giving employment to labor on this natural opportunity — this piece of ground. That is the price, and if he can't get it today he will get it when the city grows a little larger. But Enterprise says to him: "I have only $50,000 capital, all of which I shall need in my business." The land owner answers it is not his lookout, and so Enterprise turns away checkened and baffled, and the mill is not built.

CAUSE OF DULL TIMES.

And so it is everywhere. Wherever we find a portion of the vacant surface of the earth which could be utilized by capital and labor, and which affords an opportunity for human toil and enterprise, there we find a human vampire with a paper title in his hand warning off labor; and that vampire must always be placated by the payment of blackmail before the wheels of industry can begin to turn.

Need we wonder that these wheels turn slowly, and that they are always getting out of gear; that we are always talking about dull times; that men are always out of employment and always hunting for work, regarding it as a favor even to be allowed to work; that we are all the time growing too much cotton, when millions of human beings have only one shirt to their names; that we are producing too much food, when half the population of the world is insufficiently fed; that carpenters are out of work, when half the people are not comfortably housed; shoemakers wanting work and millions needing shoes? How could it be otherwise, when labor is compelled to beg for work in the midst of limitless unused opportunities for work, on which opportunities, however, sit these human vampires, these dogs in the manger, waving labor back with their paper title deeds?

AN ILLUSTRATION.

Now let us go back for a moment to that partnership between land, labor and capital. For illustration, suppose the wealth produced by the partnership to be created by the application of capital and labor to those coal beds and mineral deposits in northern Alabama, valued, as we have seen, at $50,000,000. In the division of wealth produced we have shown how, say six percent of this $50,000,000, or $3,000,000, must go to land as rent. Or, in other words, $3,000,000 a year must be paid to land owners directly as rent or interest on purchase money for the bare privilege of utilizing these gifts of nature. Now, in the division of wealth produced, why is labor entitled to any portion of it? Clearly because labor's industry has contributed to its creation. Why is capital entitled to any part of it? Because capital has furnished labor with tools with which to develop the mineral deposits. The capitalist who owns the tools can trace his title back to the creator of them, to some individual or set of individuals whose industry produced them and from whom he purchased or inherited them. The title, then, of both labor and capital to a portion of the wealth produced from these mineral deposits originates in human industry, and it is a sacred title. Now then, why should the land owner get any portion of this wealth, to produce which capital has supplied the tools and labor has done the work? This owner claims the right of making capital and labor pay him interest on $50,000,000, or $3,000,000 a year, for the mere privilege of access to this raw coal and raw ore. Ought we not to scrutinize most carefully his right to extort this immense tribute? And if he can show no natural and moral right to claim it, does not society countenance the robbery of labor in permitting him to do so? Where does his title originate?

We find that six or seven years ago he paid someone who claimed to own the land in which these mineral deposits are found $750,000 for the raw natural element for which he now demands $50,000,000. Was this additional value of $49,250,000 in six years produced by his industry? Was it produced by the industry of any previous owner of these natural elements? Did it cost $49,250,000 to discover these mineral deposits? We trace back his title a little further, and we find that perhaps a hundred years ago it originated in a grant to John Jones from the government — that is to say, the people who inhabited this country a hundred years ago and who constituted the government said: "We will divide the land and we will give John Jones this particular tract for his private property."

But did these people create that land and the coal and iron in it? Can it be shown that they had any better right to it from the Almighty Creator than the people of this generation have? Was the earth intended by the Heavenly Father for one generation to dispose of forever, or as an abiding place for all generations? Was Thomas Jefferson right or wrong when he wrote: "The earth belongs in usufruct to the living; the dead have no right or power over it?" By what authority could the people living here a hundred years ago, long since dead and gone, confer upon John Jones, also dead and gone, a right which would enable John Smith today, by tracing a paper chain of titles from him, to extort from capital and labor a tribute of $3,000,000 a year for the bare privilege of getting to that coal and iron and making it useful to mankind?

Who dares to blaspheme the name of the Almighty Ruler of the universe by saying that the coal and iron were not intended by Him for the equal use and the enjoyment of all His children — the humblest babe born today in a garret equally with a child of the proudest duke who ever lived?

MAN IS A LAND ANIMAL.

Is not man a land animal? Can he live without land? Can he any more rightfully be deprived of access to land than he can rightfully be deprived of life itself? Can he any more rightfully be compelled to yield up to a forestaller, a mere owner of land, a portion of the fruit of his industry for the privilege of getting hold of the raw material elements than he can rightfully be compelled as a slave to yield up to a master a portion of the fruits of his industry? To compel him to do so is as much a robbery of labor in one case as in the other. Why then is not the humblest babe that God sends into this world naturally and by inalienable right entitled to access to land on equal terms with all his fellow human beings?

ORIGIN OF PROPERTY RIGHT.

Mind, when we say access to land we do not include access to improvements on land, or access to anything produced by human industry, a title to which can be shown originating in human toil; we simply mean access upon equal terms to the free bounties of nature as they lie upon the kind bosom of mother earth, untouched and undisturbed by the hand of man. What I produce by my industry is mine. What I obtain by exchanging the products of my industry for the products of another's industry is mine. What my father or my grandfather produced by his industry was his, and if he has given it to me it is mine.

In all these cases human industry is the origin of property right, and property rights originating in human industry must be held sacred, else there would be no incentive to human effort. Do not the values produced by the individual belong to the individual producing them? Do not the values produced by the community belong to the community producing them? Is there anything wrong, immoral or communistic in this ideal? And yet this is the sum and substance of the Henry George philosophy.

Take the case of the vacant block on the bank of the bayou which Enterprise wanted for a paper mill and could not get. Fifty years ago it was worthless. Now labor must pay a tribute of over $20,000 to the so-called owner for the privilege of using it. Whose industry has put $20,000 of value on that piece of vacant ground? Not the industry of the present owner, nor the industry of any former owner, because no man has ever done a stroke of work upon it. That value of $20,000 has been placed upon the land by the common energy and enterprise of the entire community. Since the community has produced that land value why does it not belong to the community? Why has not the community the same rights to the value it creates as the individual has to the values which he individually creates?

THE REMEDY.

How shall this derangement of the wheels of industry, this blackmail upon enterprise, this robbery of labor, this eager and fatal competition among laborers for employment, this slavish fear of the loss of a situation in the midst of abundant unused opportunities for employment — how shall this curse which our present land system has fastened upon the productive industry of the country, be removed? Simply by doing justice; by being honest; by recognizing in our laws one of the inalienable rights of man; by recognizing in every human being, in every generation, the present as well as the past, an inalienable right of access to the bounties of nature on equal terms with every other human being.

How shall this right of access on equal terms be secured? Simply by making every individual who claims a right to the exclusive possession of a tract of land pay in the form of a tax approximately what the use of that tract of land is worth, exclusive of all improvements on it or anything done to it by the hand of man, and by abolishing every other form of taxation. Take the rent of land for public use instead of taxes.

WILL SIMPLIFY GOVERNMENT.

Some one asks: "Will not this proposed change vastly increase the functions of government and immensely add to the number of government employees?" I reply no. On the contrary, at least two-thirds of the present army of revenue collectors and tax gatherers will be dispensed with, and the remaining one-third will collect this single tax on land values at one-third the expense now incurred in the collection of national, state, county, and municipal taxes.

Another inquirer asks: "Will not the new system offer abundant opportunities for corruption and partiality in fixing the amount of this tax annually to be paid for the exclusive use of a piece of land? And how do you propose the amount of the tax shall be determined?" It will be determined by the same law of demand and supply which now determines the amount of tax under the present system. The single tax will be fixed by the same machinery of an assessor and a board of equalization which fixes it now. For instance, under this system a piece of property on Main street rents for $5,000 a year. Interest at the prevailing rate on the building alone, added to the annual cost of insurance, repairs and caretaking, and a sum sufficient to provide a sinking fund for renewals amounted to, say $3,000 a year. The landlord is then collecting the difference between $3,000 and $5,000, or $3,000 for the use of this naked earth. That is to say, he is collecting $2,000 a year for the use of something never created by man, to which all are by natural right equally entitled, and which owes its rental value of $2,000 a year exclusively to the common enterprise and energy of the entire community.

This is the sum which, under Henry George's system, would be turned over to the government in the form of a tax for the common benefit of the community who collectively have made the use of this land worth $2,000 a year.

Here an interested friend anxiously inquires: "But if the landlord has to pay this tax of $2,000 a year for the use of the land, will he not take it out of the tenant by raising his rent to $7,000?" No, for the landlord's charges now all he can compel the tenant to pay. Suppose he tries to. Suppose he says to his tenant: "You must now pay me $7,000 a year." What happens? Just what happens every day now. If the tenant can do no better he pays the increase. But now, mark you, when the landlord goes to pay his tax what happens then? Why the board of equalization says to him, you have received $7,000 a year rent for the use of improvements worth only $3,000 a year. You are therefore collecting $4,000 a year instead of $2,000 for the use of the naked lot, and you will therefore pay the city or state $4,000 a year for the privilege of the exclusive use of the ground instead of $2,000 a year as heretofore. Now what has the landlord made by jumping up the rent? Nothing. What would be made by thus jumping up the rents under the present system? Everything. Under which system would landlords be more apt to force up rents?

DETERMINING THE TAX.

Another way by which the board of equalization under the George system would determine the amount of tax to be paid for the privilege of the exclusive possession of a tract of land, and which would also compel landlords to collect from their tenants and turn over to the government in the form of a tax the full value of the use of the land, would be from observation of the prices which real estate brought in the market. But note, at this point some smart fellow jumps up — and he is likely enough to be a newspaper editor — and vehemently protests, saying: "Why, sir, the taxation of ground values plan does not propose to allow any exclusive ownership of land. It demands that the government own it all and rent it out or divide it up into 60,000,000 or 70,000,000 little bits, or do something of that kind with it, and here you are talking about lands being bought and sold under the Henry George system. Why, man alive, you don't know what that system is!"

Now, Mr. Editor, or Mr. Who-ever-you-are, let me say to you that in your ignorance, or in your indifference to the sufferings of your fellowmen, or in your desire to pander to the greed of monopoly, or to the timidity of capital, you may say what you please; you may misrepresent as much as you please for the purpose of bringing odium and contempt upon the cause; you may call it what you please — state ownership, state landlordism, ownership in common, communism, nihilism, anarchism or anything else; but the fact, nevertheless, remains that, under the just and righteous land system which we are trying to explain, the land will continue to be bought and sold under the same form of paper deeds, precisely as it is bought and sold today. It will continue in precisely the same way to pass to devisees by will and to heirs by law of descent and distribution. The right of control, of exclusive possession and dominion over a piece of land and of the free and exclusive enjoyment of all improvements on it, will in no way be abridged or disturbed. When you buy a lot on Main street today worth $10,000 with a building on it worth $10,000 more, your deed recites a consideration of $20,000. Now when you buy this same property under the George system, the only difference in the whole transaction will be that your deed for it — assuming that the price accords with the market value prevailing at the time of your purchase — will recite a consideration of only $10,000, and $10,000 is all that you will then pay for the property. You will pay nothing for the land. After you have bought the property you will pay yearly in the form of a tax to the government, approximately the full market value of the (yearly) use of it — which will amount to the annual rental value of the land, and as the man from whom you purchased had to pay the government the same annual rental value, you will consequently pay nothing, or approximately nothing*, to him for the land itself when you purchase the property. You thus save an investment of $10,000 in dirt; instead of such investment you will pay for the common benefit of the community, including yourself, what the privilege of the exclusive use of that spot of earth is worth — nothing more, nothing less — and that is simply what you ought to pay. The $10,000, which, under the present system, you are compelled to bury in a bit of earth, you will have left you with which to increase your business; and if you do increase your business with it, and add another story to your building, no tax gatherer will come around and impose an additional fine upon you for doing something with your money which gives employment to labor.

* There will, no doubt, be instances where the desire of an individual to get and retain possession of a certain piece of property, will cause him tooffer a bonus over and above the market value of the improvements.

 

NO PROPERTY IN LAND.

Thus, under the single tax system, land would be sold and would change hands as it does now, but it would only bring in the market approximately the value of the improvements on it. If land in any locality should get to selling for considerably more than the value of the improvements on it, this would be a certain indication that the parties using the natural elements in that neighborhood were not paying for the benefit of all the people what the use of the same was worth, and so a board of equalization would put the tax up. As population increases the value of the use of land increases, and with it, under the George system, the revenue from this tax on land values will increase, and thus the entire people who collectively produce this increasing value will get the benefit of the values collectively produced by them. As it is now, the increase in the value of land, which amounts to several billions annually in the United States, four-fifths of which is increase in the value of city and town lots and mineral deposits, goes to a comparatively small number of individuals who do no more to produce these values than any other members of the community.

TAXATION ABOLISHED.

Another doubter puts this objection: Under the George system you would make the owner of a lot on Main street, with an improvement on it worth $10,000, pay as much tax as the owner of a similar lot adjoining, having a building on it worth $50,000. What justice is there in that?

Let us see. Take away the improvements and these two lots are of the same value — that is to say, the value of the use of both lots for ordinary business purposes is the same. Suppose it is $300 a year. Now, the man with the $50,000 improvement collects from his tenant ten percent on his $50,000, or $5,000. He also collects $300, the value of the use of the lot, making in all $5,300. The man with the $10,000 improvement also collects ten percent upon the valuation of his improvement from his tenant, of $1,000. He, too, collects $300 in addition for the use of the lot, making in all $1,300. Now after both have paid the government $300 apiece for the privilege of the exclusive use of these lots, each will have left ten percent upon the capital invested, and why should one be entitled to any greater percent upon the capital invested than the other?

The fact is, that under this system there will be no such thing as taxes. Taxation, as we now understand it, will be abolished. The revenue derived by the government from requiring all who use a natural opportunity to pay into the common treasury what the use of that opportunity is worth, if it is worth anything at all, will be more than sufficient to enable the government to dispense with every species of taxation. As it is now, when you pay your taxes, you are simply robbed of a portion of the fruits of your industry, for which you do not get, directly, any equivalent. Under the proposed system, when you pay your single tax on land values you will get directly a full equivalent for every dollar paid. You will get the privilege of the exclusive use of a tract of land for what that privilege is worth.
 

ACCESS TO UNUSED LAND.

If this system were adopted what would become of the vacant lots and lands, the unused coal beds and mineral deposits, the unoccupied water fronts and water privileges over which human vampires now stand guard, retarding enterprise and driving off labor? They would become absolutely free. No one could afford to hold them and pay taxes on them. The vampires would turn them loose. Land speculators and land sharks, instead of trying to grow rich by forestalling labor and capital and thus preying like devouring beasts on their fellowmen, would turn their talents to better account. Wherever labor could find an unused lot or coal bed or mineral deposit or unused tract of land, there labor could go to work and employ itself without being required to invest a dollar in the purchase of a right of access to the natural element, without being compelled to first make terms with a dog in the manger claiming it as private property and holding it for speculative purposes.

If that vacant natural opportunity were situated near a center of population, or were of a character to bestow peculiar money-making advantages upon the persons using it, this advantage would create a demand for it, and this demand would regulate in the manner already pointed out the amount which labor and capital would pay for the use of it, in the form of a tax for the common benefit of all. If that vacant opportunity, for instance, were a tract of land four or five miles from this city, it would have few advantages to make the use of it at present peculiarly valuable. Why? Because there is so much vacant land of the same character near it, the use of which is equally valuable, that no one would give a bonus, as it were, for the use of that particular tract. Labor would, therefore, at first get the use of that land for nothing. It would have no taxable value at all until all the other vacant land similarly situated was put into use. Under this most just and equitable system the taxable values of land would be confined almost exclusively to the cities and towns and the coal and mineral deposits. Where people congregate, there land has value. In New York City alone, capital and labor today pay to a few thousand land owners, in ground rent alone, exclusive of rent paid on improvements, for the bare privilege of living and doing business, tribute money amounting to hundreds of millions annually, a sum almost equal to the expense of carrying on the government of the United States. It is in these great centers of trade and commerce that land has its greatest value; it is here that land values are mostly found and from these centers nine-tenths of the revenue of the government from this tax on land values would be derived.

FARMERS WOULD BE BENEFITED.

If the George plan were suddenly put in force today, not only would all farmers be relieved from direct and indirect taxation, not only would farmers participate in common with all others in the universal and uninterrupted prosperity which would result from removing the obstructions which needlessly hamper and clog enterprise, but probably three-fourths of the working farmers in this country would pay no land tax at all. Why? Because with so much vacant or but partially cultivated land as there is here today three-fourths of the farmers would have no taxable value at all; and all who are counting on the farmers of America being so foolish as not to see how they will be as much benefited by a just and righteous land system as any other class will certainly be disappointed.

EFFECT ON FARMS.

"Yes," says our farmer friend, "but you propose to confiscate the farmer's land." Let's see about that. You are a farmer owning say a hundred-acre farm, situated like a majority of farms, in a neighborhood where for every acre of land in cultivation there are two or more acres unimproved or but partially improved. Your farm is worth under the present system, say $2,000. A hundred acres of this unimproved land adjoining it of the same quality is held by some speculator at $500. Your tax on your hundred-acre farm is $10 a year, the speculator's tax on the hundred acres of land adjoining of equal value, exclusive of improvements, is $2.50 a year — one-fourth as much as yours. You give employment to labor on your land, and thereby add to the prosperity of the community. The speculator excludes labor from employment on his land, and thereby retards the prosperity of the community. Why should you be taxed any more for using your hundred-acre tract, and giving employment to labor on it, than the speculator is taxed for holding in idleness a tract of equal value and preventing labor from using it? Why should not the speculator pay at least as much tax for the privilege of excluding labor from his tract as you have to pay for the privilege of employing labor on yours? Have you hurt anyone by turning up the wild sod and building fences and houses and putting $1,500 worth of improvements on your land? If not, why should you be fined for it by having your taxes increased?

Where our plan is adopted you will have no taxes at all to pay until this vacant land around your farm is put into use. Until then no land value could attach to your farm, and the tax which, with increasing population, you would ultimately be required to pay, would seldom equal and rarely, if ever, exceed that which farmers now pay on the improvement valuation. Assuming that you spend say $600 a year on your family, then under the present system your taxes, direct and indirect, and the toll which the merchants take for collecting indirect taxes, amount to at least $100 a year. You may not know it, because an indirect tax always fools a fellow paying it. You will be relieved from all these taxes, but best of all, men who are now idle and who can't buy what you raise will all be at work, and not only that, but their wages will be high enough to pay good prices for what you raise. It is true that under the new system you could only sell your place for $1,500. Still, with this same $1,500 you could buy just as good a place from some one else. The purchasing power of your farm, when it comes to buying another farm, would not have been reduced. Do not your interests as producer or a laborer vastly exceed your interests as a land owner?

LANDLORDISM AND GOVERNMENT

Now, coming back to the elements of the new political economy, some one says: "What difference does it make to the workmen whether labor and capital pay this ground rent to the individual or to the government, since, according to your theory, it must be paid all the same?" In the first place, if it is paid to the individual none of it ever comes back to labor and capital unless value received is paid for it; so far as labor and capital are concerned, it might about as well be cast into the sea. But when it is paid to the government in the form of a tax on land values it does come back to labor and capital again in the form of relief from every species of taxation, direct and indirect.

Again, the amount that Enterprise would pay the government for the privilege of access to the natural elements would be less under the single tax than is now paid individuals for this privilege. Under the land value tax the prices could not be advanced by monopolization of these elements, as is being done now.

But best of all, and by far the most glorious result that will flow from the establishment of a just and righteous land system, is that it will enable the wealth creator to stand erect, presenting to capital an unterrified front.

Return for a moment to the coal beds of northern Alabama and imagine the Henry George system adopted. Labor now again objects to the terms offered by capital, and again capital tells him to go. And again labor goes forth hunting for work. But how different he finds the aspect of things. He finds the same unused natural elements, the same unused coal beds and mineral deposits, the vacant lots and lands, but he no longer finds a fellowman sitting upon every vacant opportunity for work and waving him off. They have vanished. They have gone to work themselves. He finds every unused opportunity for labor, wherever it may be, absolutely free. Not a dollar of capital need be invested in buying a natural opportunity, in paying for the privilege of work. When labor went forth hunting work before, he not only had to ask capital to pay for the tools, but also to pay, usually a greater sum, to some forestaller, in addition, as blackmail, for the privilege of access to a natural element.

This will all be changed. It won't take near as much capital to start enterprises as it did, or in other words, to give employment to labor. In fact, labor could then take even an axe and hoe and find plenty of vacant opportunities on which he could make a living without having to bury himself in a wilderness to do it. All this makes him feel independent and enables him to bargain with capital for employment on equal vantage grounds.

MONOPOLY IS PROFITABLE.

Some time since a large manufacturing firm in Massachusetts adopted the eight-hour system. After trying it a year they gave it up and went back to the ten-hour system. The general manager said they could only make five percent profit on their investments by requiring only eight hours' work, and that unless they could make a bigger percentage than that, they would not be bothered with the management of the business — they would put their money into town and city lots, because that species of property would certainly enhance in value as much as five percent annually, and that, too, without any trouble to the owner, and so it is everywhere. Now, is it not absurd to expect to reduce the rate of profits with which capital will be content below this steady percent of increase in the value of town and city lots, by any combination of labor, or by any legislation which falls short of restoring these land values to the people who collectively create them?

Suppose you have $10,000 today. The best and safest thing you can do with it is to invest it in town lots in or near some growing town. Ten years from today, unless the George theory becomes generally understood, the lots will be worth $20,000 and you will have drawn to yourself $10,000 worth of wealth for which you have given no equivalent. You will simply have robbed the labor of the country of $10,000. But now suppose ground values to be appropriated to the public use by taxation. What are you to do with your $10,000? You would not buy vacant lots now; there is no speculation in them. The tax which you would have to pay for the privilege of excluding capital and labor from the opportunities for employment which vacant lots afford, would be too heavy for you. In fact, you couldn't even loan on land alone, because land alone will have no selling value in the market. The result is, that unless you let your money lie idle and so lose interest on it, you will be compelled to invest it so as to give employment to labor. You must put it into buildings, into machinery, into manufactory stock, into farm implements, into some channel where it will be active and where it will afford employment to labor.

Not only must you do this with your capital, but every other capitalist must do the same with his capital. Capitalist thus must bid against capitalist, since capital can only increase by calling labor to its aid and giving it employment.

Under the present system the rich can grow richer without calling in the aid of labor, without giving employment to labor. They do so by buying space and monopolizing land.

Under the present system, as wealth accumulates, the wealthy seek to invest in land, to get control of natural elements, and get into a position from which to blackmail labor, thus becoming an obstacle in the way of the production of more wealth.

Under the better system, however, wealth could not thus be made to set up an obstacle to the creation of more wealth, or, in other words, to the employment of labor. It can then only obtain a profit by investing in lines of enterprise which give employment to labor.

Under which system will the demand for labor be greater? Under which will earnings be higher?

James Love's paragraph summary of Progress and Poverty

I had the pleasure of stumbling across a piece of writing from about 100 years ago.  It is in one of quite a large number of books written by enthusiastic admirers of the ideas of Henry George, put online by Google Books.  This is from a book by one James Love (written under a pseudonym).  I've reformatted it a bit to make it easier to read here.   It is a good summary of "Progress and Poverty," still the best book I know on political economy and economic justice -- why we suffer from wealth concentration, income concentration, poverty, sprawl, and a number of our other most serious social and environmental problems.   Here's the excerpt; read it slowly and consider its implications!

This man, who I believe to be the completest in thought and language that the world has seen, and his book the most precious ever given by man to men, concludes

• that the world (even more necessary to our existence than our own bodies are) is intended for all men of all generations, and not for some men alone.
• That every human being born into the world has a natural right in it equal to that of every other human being born into it.
• That as man by his nature seeks to gain his ends in the easiest way, some parts of the earth on which he can accomplish much become more desirable than other parts on which he can accomplish less.
• That this varying desirability, causing competition for the use of certain lands, shows itself in "rent," which is thus a communal product, and as clearly belongs to communities as the remainder of the produced wealth belongs to the individual producers.
• That it is as impolitic and unjust to take from the individual for the use of the community what has been produced by the individual as it is impolitic and unjust not to take for the use of all, or of the community, that which is produced in common by the community.
• That, in short, "rent" is the natural, God-intended fund for general public use. And
• that in denying this moral law of equal rights to land there is brought about a pitiful inequality of true wealth, and a sordid struggle for existence, destructive of human freedom and eventually bringing progress to a halt.
• And that we are at last learning that in setting up "vested rights" — based whether on ancient force or ancient law — developed into modern custom — and denying this equality, we rob men and deny the truly sacred right of every man to the product of his labor; deny the sacred right of property in "wealth."
• And that in treating private property in land as sacred (worse than treating property in man as sacred) "there never was a more degrading abasement of the human mind before a fetich."
• But that, on the contrary, "by conforming our institutions to this divine law of justice we will bring about conditions in which human nature can develop its best;
  
  • will permit such enormous production of wealth as we can now hardly conceive;
  • will secure an equitable distribution;
  • will solve the labor problem and dispel the darkening clouds now gathering over the horizon of European civilization.
  • We will make undeserved poverty an unknown thing;
  • will check the soul-destroying greed of gain, and
  • will enable men to be at least as honest, as true, as considerate and highminded as they would like to be.
  • We will open to all, even the poorest, the comforts and refinements and opportunities of an advanced civilization; and
  • we will thus, so we reverently believe, clear the way for the coming of that kingdom of right and justice, and consequently of abundance and peace and happiness, for which the Master told his disciples to pray and work."*

* "The strength of ' Progress and Poverty' is not that it restated fundamental truths which others had before stated. It is that it related these truths to all other truths. That it shattered the elaborate structure that under the name of 'Political Economy' had been built up to hide them, and restoring what had, indeed, been a dismal science to its own proper symmetry, made it the science of hope and of faith." —Reply to charge of plagiarism.—Henry George.

Thy Kingdom Come!

I sang this hymn this morning, and the fourth and fifth verses made me wonder whether it might have been inspired by the ideas of Henry George. 

1 "Thy kingdom come!" on bended knee the passing ages pray; and faithful souls have yearned to see on earth that kingdom's day.

2 But the slow watches of the night not less to God belong; and for the everlasting right the silent stars are strong.

3 And lo, already on the hills the flags of dawn appear; gird up your loins, ye prophet souls, proclaim the day is near:

4 The day to whose clear shining light all wrong shall stand revealed, when justice shall be throned in might, and every heart be healed;

5 When knowledge, hand in hand with peace, shall walk the earth abroad; the day of perfect righteousness, the promised day of God.

Words: Frederick Lucian Hosmer, 1891       Music: Irish, St. Flavian

I also found a second related hymn Hosmer wrote in 1905, here: 

1 Thy Kingdom come, O Lord, Wide circling as the sun; Fulfill of old Thy Word And make the nations one.

2 One in the bond of peace, The service glad and free Of truth and righteousness, Of love and equity.

3 Speed, speed the longed for time Foretold by raptured seers— The prophecy sublime, The hope of all the years.

4 Till rise at last, to span Its firm foundations broad, The commonwealth of man, The city of our God.

Henry George delivered a sermon entitled "Thy Kingdom Come," in 1889 in Glasgow, Scotland.  Most likely he gave that speech many more times in other places.   It includes these paragraphs:

Nothing is clearer than that if we are all children of the universal Father, we are all entitled to the use of His bounty. No one dare deny that proposition. But the people who set their faces against its carrying out say, virtually: “Oh, yes! that is true; but it is impracticable to carry it into effect!” Just think of what this means. This is God’s world, and yet such people say that it is a world in which God’s justice, God’s will, cannot be carried into effect. What a monstrous absurdity, what a monstrous blasphemy!

If the loving God does reign, if His laws are the laws not merely of the physical, but of the moral universe, there must be a way of carrying His will into effect, there must be a way of doing equal justice to all of His creatures.

There is. The people who deny that there is any practical way of carrying into effect the perception that all human beings are equally children of the Creator shut their eyes to the plain and obvious way. It is, of course, impossible in a civilization like this of ours to divide land up into equal pieces. Such a system might have done in a primitive state of society. We have progressed in civilization beyond such rude devices, but we have not, nor can we, progress beyond God’s providence.

There is a way of securing the equal rights of all, not by dividing land up into equal pieces, but by taking for the use of all that value which attaches to land, not as the result of individual labor upon it, but as the result of the increase in population, and the improvement of society. In that way everyone would be equally interested in the land of one’s native country. Here is the simple way. It is a way that impresses the person who really sees its beauty with a more vivid idea of the beneficence of the providence of the All-Father than, it seems to me, does anything else.

One cannot look, it seems to me, through nature — whether one looks at the stars through a telescope, or have the microscope reveal to one those worlds that we find in drops of water. Whether one considers the human frame, the adjustments of the animal kingdom, or any department of physical nature, one must see that there has been a contriver and adjuster, that there has been an intent. So strong is that feeling, so natural is it to our minds, that even people who deny the Creative Intelligence are forced, in spite of themselves, to talk of intent; the claws on one animal were intended, we say, to climb with, the fins of another to propel it through the water.

Yet, while in looking through the laws of physical nature, we find intelligence we do not so clearly find
beneficence. But in the great social fact that as population increases, and improvements are made, and men progress in civilization, the one thing that rises everywhere in value is land, and in this we may see a proof of the beneficence of the Creator.

Why, consider what it means! It means that the social laws are adapted to progressive humanity! In a rude state of society where there is no need for common expenditure, there is no value attaching to land. The only value which attaches there is to things produced by labor. But as civilization goes on, as a division of labor takes place, as people come into centers, so do the common wants increase, and so does the necessity for public revenue arise. And so in that value which attaches to land, not by reason of anything the individual does, but by reason of the growth of the community, is a provision intended — we may safely say intended — to meet that social want.

Just as society grows, so do the common needs grow, and so grows this value attaching to land — the provided fund from which they can be supplied. Here is a value that may be taken, without impairing the right of property, without taking anything from the producer, without lessening the natural rewards of industry and thrift. Nay, here is a value that must be taken if we would prevent the most monstrous of all monopolies. What does all this mean? It means that in the creative plan, the natural advance in civilization is an advance to a greater and greater equality instead of to a more and more monstrous inequality.

“Thy kingdom come!” It may be that we shall never see it. But to those people who realise that it may come, to those who realize that it is given to them to work for the coming of God’s kingdom on earth, there is for them, though they never see that kingdom here, an exceedingly great reward — the reward of feeling that they, little and insignificant though they may be, are doing something to help the coming of that kingdom, doing something on the side of that Good Power that shows all through the universe, doing something to tear this world from the devil’s grasp and make it the kingdom of righteousness.

Aye, and though it should never come, yet those who struggle for it know in the depths of their hearts that it must exist somewhere — they know that, somewhere, sometime, those who strive their best for the coming of the kingdom will be welcomed into the kingdom, and that to them, even to them, sometime, somewhere, the King shall say: “Well done, thou good and faithful servant, enter thou into the joy of thy Lord.”

I wonder if Henry George's words helped inspired Frederick Hosmer's hymn.  I commend the entire sermon to your attention; parts of it will make you smile.

God bless the child that's got his own

Them that's got shall get
Them that's not shall lose
So the Bible said* and it still is news
Mama may have, Papa may have
But God bless the child who's got his own, who's got his own

Yes, the strong gets more
While the weak ones fade
Empty pockets don't ever make the grade
Mama may have, Papa may have
But God bless the child who's got his own, who's got his own

*Likely a reference to Matthew 25:29, which can be translated as "For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him."

Consider the possibility that the meaning behind Billie Holiday's lyrics and Matthew 25:29 is not prescriptive but descriptive: that those who own land will always receive land rent, while those who do not have it must pay those who do have it for access to it (to have a place to live and a place to work), and thus will always be poor, particularly if, in addition to paying someone for access to land, they must pay taxes on their labor and/or on their purchases, in order to support Caesar (who was not part of the community) or to pay for the provision of public goods (schools, roads, courts) for the community.   Landlords in high-rent areas receive lots of rent; landlords in low-rent areas -- including small towns and agricultural land -- receive far less -- but it is still the landless who are paying them, for access to something whose value the landlords didn't create.

And then hear the words of Leona Helmsley:  "WE don't pay taxes.  The little people pay taxes."  She knew whereof she spoke. Property taxes in the places she did business were rather low, but her customers and workers paid significant taxes on their purchases and wages.   Deep down, she likely knew that she didn't make the sites of her buildings valuable: we all did.

A simple tweak of our taxation system can change it all: we can collect from landlords and other landholders some significant fraction of the annual rental value of their land, and use it to fund our public spending, instead of taxing sales, and buildings, and wages.   Not only would it be just and reduce the concentration of wealth and income, but, as the 2008 OECD study showed, it would promote economic growth.

I find it much easier to accept the idea that the gospel verse is descriptive than to believe that a loving god would intend it to be prescriptive.  You might explore wealthandwant.com for "The Crime of Poverty."

Concerning Women

Land Grab in Ipswich, Massachusetts: Little Neck's 32 acres

For several years now I've been following the story of a lovely, scenic 30-acre neck (almost-island) of land on a sheltered piece of the Atlantic Ocean about an hour's train ride north of Boston.  It currently contains 167 rented-out lots, of which 24 can be occupied year-round and the other 143 only seasonally. Half of the land is unoccupied, available to all tenants; the rest is subdivided into mostly small lots; all have panoramic water views, of varying quality.   The tenants own their cottages, most of which are in the 800 to 1000 square foot range, and typically 70 to 100 years old; a few are 2-story, newer or larger.  Asking prices run as high as $600,000, and I've seen few transactions below $300,000.  I estimate the cottages themselves to be worth about $75,000 anywhere else.   Currently annual land rent is in the range of $10,000, up considerably from many years of token rents, and many of the tenants are objecting to paying them, putting them into escrow  -- and, remarkably, planning to use the escrowed rent as a down payment to BUY the land!  (That brings a new meaning to chutzpah, which, you might recall, was exemplified by the man who killed his parents and then threw himself on the mercy of the court because he was an orphan!)

In 1650, the will of a resident, William Paine (Payne?), apparently gave the land to be managed for the benefit of the school(s) of Ipswich, via the provision that "unto the free scoole of Ipswitch the little neck of land at Ipswitch knowne as Jeferry's neck, the which is to be and remaine to the benefitt of the said scoole ... for ever as I have formerly intended and therefore for the sayd land not to be sould nor wasted".   It seems to me that his intent was pretty clear: keep the land forever ("not soulde"), take care of it, and collect market-level rents ("nor wasted") for the benefit of the beneficiary (the local school). 

And yet the trustees -- known as Feoffees -- have apparently entertained an offer from the current group of 167 tenants (calling themselves "The Little Neck Legal Action Committee!) to sell the land for a tiny fraction of its value, which I estimate could be as high as $71 million. (My calculations are 3 paragraphs below this one.)   The offer was in the range of $30 million, of which $6 million would go for paying off bonds on a wastewater system installed a few years ago.

There has been no effort to market the land to other possible buyers. 

Apparently this has become so troublesome that some in Ipswich want to sell the land to the tenants, figuring that a little income from the proceeds is better than no income from recalcitrant tenants!    Absolutely amazing.   Short sighted.   And it represents the privatization of an asset which was designed to provide a public benefit, forever.

Calculations:  When a cottage worth $75,000 sells for $300,000 or more, what is being sold is land value -- locational value.  But the tenants don't own the land, and I can't imagine a rational lender being willing to lend on an asset which the borrower doesn't own!  The current land rent of about $10,000 per year represents roughly $200,000 in land value per lot (5% capitalization or "20 years' purchase").  Add to that the $225,000 in land value in the $300,000 price for a $75,000 cottage, and you're looking at $425,000 in land value per cottage.  Multiply that by 167 and that's $70,975,000.  (The cottages would be another $13.4 million or so.)  Obviously, some locations are better than others, some lots are larger than others, and year-round rights are more valuable than only seasonal occupancy rights.   (You'll note that the $225,000 in land value in the $300,000 example is less than what 5 of the 6 current listings suggest.)

A. Current Little Neck listings at realtor.com and zillow.com [the latter added here on 11/15/10]: recall that all the sellers own is the building, not the land.  And that the cottage buyers should expect to pay $10,000 or more in land rent -- the current rate)

Table 1: Cottages for Sale on Little Neck, mid November, 2010
		--- Assessments ---						Ask as % Bldg*	Ask minus Bldg
Address	Ask	Bldg Value	Land Value	Total	Built	Descrip	Lot size
50 River Road	$599,000	$84,500	$347,800	$432,300 LY:  $383,400	1910	5BR, 1B, 1779 sq ft	3485	709%	$514,500
33 Bay Road	$585,000	$124,900	$178,200	$303,600 LY: $343,800	1930	3BR, 1B, 1318 sq ft	2614	468%	$460,100
35 Hilltop Road	$579,900	$88,400	$195,800	$284,200 LY: $268,500	1935	4BR, 1B, 852 sq ft	3040	656%	$491,500
24 Hilltop Road	$399,000	$107,100	$195,800	$303,000 LY: $287,300	1930	3BR, 1B, 1408 sq ft	3000	373%	$291,900
6 Plum Sound Rd	$375,000	$106,600	$222,800	$329,400 LY: $323,200	1920	3BR, 1B, 1160 sq ft	3049	352%	$268,400
23 Bay Road	$259,900	$64,200	$222,800	$287,000 LY: $285,800	1910	2BR, 1B, 800 sq ft	3049	405%	$195,700
average	$466,300	$95,950	$227,200		1922			485%	$370,350
5% of LV **			$11,360						$18,518
*Asking price as percent of assessed building value ** Land rent at 5%, a/k/a "20 years' purchase" Note that $11,360 is somewhat higher than the current land rent of $9,700 (seasonal) and $10,800 (year-round), suggesting that those rents are low vis a vis the assessed land value.   The $18,518 in the final column suggests that current rents, based on these 6 asking prices, should be 80% more than what is now being charged , assuming that the building valuations are reasonably accurate. Sources: realtor.com (viewed 11/14/2010) supplemented by zillow.com and assessor's database (viewed 11/15/10)

Observations:

1. The sellers are asking prices which are well above not just the assessor's valuation of the building itself, but also above the value of the land plus the building!  Compare this to the asking prices on other homes in Ipswich with less than 1800 square feet, and with 1 or 2 bathrooms (below).   And this is under the condition of annual land rent of about $10,000.
2. The lowest-priced LN listing, at $259,900, has a building assessment of $64,200 and a land assessment of $222,800.  The difference between the asking price and the building assessment is $195,000. ($195,000 times 167 is $32,565,000.)     And this is under the condition of annual land rent of about $10,000.
3. The average difference between the ask and the building assessment is $370,350 .  Multiple that by 167 tenants, and one gets an aggregate land value of $61,850,000 -- and that's with the $10,000 land rent!! 
4. The building assessments average $95,950.   The land assessments average $227,200.  Multiply that $227,200 by 167, and the aggregate value of the LN land is $37,942,400.   And that's under the condition of a $10,000 annual land rent!
5. The asking prices average $466,300, 485% of the average building assessment!
6. It seems odd that the LNLAC is offering so little, and that the hired appraisers are valuing the land at such low figures.

B. Comparable cottages for sale in other parts of Ipswich (where the seller owns the land and is selling both land and house, so there is no land rent payment involved) suggest that most other sellers are asking much closer to the assessor's valuation (some higher, some lower, but typically within 20%, as compared to 385%!):

• $479,000:  975 sq ft, 3 BR, 1 bath, on .42 acre lot [35 Plover Hill Rd, built 1940; building assessment $102,900; land assessment $296,800; total assessment $399,700, down from $431,700 in 2009.] --- photos suggest views somewhat comparable to Little Neck's    Asking price as % of assessment: 120%
  
• $425,000: 1867 sq ft, 3 BR, 1 bath; on .97 acre lot [299 Linebrook Rd, built 1950; building assessment, $153,700; land assessment $228,800; total assessment $382,500, down from $401,200 in 2009.]  Asking price as % of assessment: 111%
• $339,900: 1216 sq ft, 3 BR, 1 bath, on .34 acre lot [5 James Rd, built 1962; building assessment $108,500; land assessment $185,500; total assessment $294,000, down from $317,100 in 2009.]
• $319,900: 1344 sq ft, 3 BR, 2 bath, on .25 acre lot [13 Poplar St, built 1948; building assessment $113,200; land assessment $245,200; total assessment $358,400, down from $402,000 in 2009.]
• $319,900: 1187 sq ft, 3 BR, 1 bath, on .08 acre lot [13 Peatfield Street, built 1900; building assessment $125,500; land assessment $148,500; total assessment $274,000, down from $293,400 in 2009.]
• $319,000: 1250 sq ft, 2 BR, 2 bath, on 7840 sq ft lot [3 Brownville Avenue, built 1910; building assessment $130,700; land assessment $174,300; total assessment $305,000, down from $332,300 in 2009.]
• $309,000: 1584 sq ft, 3 BR, 1 bath on 9149 sq ft lot [1 Heatherside Ln, built 1958; building assessment $111,900; land assessment $199,300; total assessment $311,200, down from $338,900 in 2009.]
• $265,000: 1100 sq ft; 3 BR, 2 bath on 9,583 sq ft lot [12 Washington Street, built 1900; building assessment $110,300; land assessment $177,100; total assessment $287,400, down from $301,100 in 2009.]
• $265,000: 1410 sq ft, 3 BR, 2 bath on 0.06 acre lot [4 6th Street, built 1910; building assessment $111,900; land assessment $125,600; total assessment $237,500, down from $253,300 in 2009.]
• $259,000: 932 sq ft, 3 BR, 2 bath on 9583 sq ft lot [8 Cleveland Avenue, built 1900; building assessment $105,600; land assessment $176,600; total assessment $282,200, down from $311,200 in 2009.]
• $224,999: 1632 sq ft, 3 BR, 1 bath on 0.07 acre [4 Highland Avenue, built 1907; building assessment $157,400; land assessment $195,000; total assessment $352,400, down from $389,700 in 2009.]
• $229,000: 668 sq ft, 2 BR, 1 bath on .27 acre lot [6 Cameron Avenue, built 1930; building assessment $42,200; land assessment $204,000, total assessment $246,200, down from $264,900 in 2009.]
• $169,900: 1019 sq ft 2BR, 1 bath on .40 acre lot [8 Winter Street, built 1920; building assessment $81,200; land assessment $189,400]

C. Some additional newer/larger homes on sites with good views:

• $1,150,000  on .36 acre lot [52 Skytop Rd, built 1992 on .36 acres: building assessment $328,000; land assessment $290,800; total assessment $618,800, down from $681,000 in 2009]
• $970,000: 2330 sq ft, 3 BR, 2 baths on .30 acre lot [28 North Ridge Road, built 1990; building assessment $211,800; land assessment $543,400; total assessment $755,200, up from $582,200 in 2009.] 
• $639,900: 1923 sq ft, 3 BR, 2 baths, on 7841 sq ft lot [114 North Ridge Road, built 2010, building assessment $160,800; land assessment $377,400, total assessment $538,200.  photos suggest views somewhat comparable to Little Neck's.   Asking price as % of assessment: 119%

D. Some recent sales, also from Realtor.com; notice that the transaction prices are generally pretty close to the assessor's valuations, which validates the assessments:

• $612,500 (May, 2010):  2309 sq ft, 2 BR, 2 baths, on .26 acre lot [24 Northridge Road, built 1940; building assessment $163,700; land assessment $534,200; total assessment $697,900, down from $753,800 in 2009.]
• $530,000 (Oct, 2010): 1410 sq ft, 2 BR, 2 baths, on .34 acre lot [59 Skytop Rd, built 1986; building assessment $204,600; land assessment, $288,000; total assessment $492,600, down from $533,700 in 2009.]
• $400,000 (Oct, 2010): 1500 sq ft, 2 BR, 2 baths, on 3.90 acre lot [76 Town Farm Road, built 1930; building assessment $96,400; land assessment, $300,600; total assessment $397,000, down from $471,500 in 2009.] 
• $379,900 (Sept, 2010): 1610 sq ft, 2 BR, 2 baths, on 2.32 acre lot [156 Topsfield Rd, built 1968; building assessment $154,600; land assessment $240,800; total assessment $395,400, down from $418,100 in 2009.]
• $360,000 (Sept, 2010)  1600 sq ft, 3 BR, 1 bath, on 1.00 acre lot [316 Linebrook Rd, built N/A; building assessment, $133,300; land assessment 230,900; total assessment $364,200, down from $391,500 in 2009.]
• $309,000 (Sept, 2010): 1894 sq ft, 3 BR, 1 bath, on .22 acre lot [12 Hodges Way, built 1964, building assessment, $143,500; land assessment, $168,000; total assessment $311,500, down from $332,300 in 2009.]
• $300,000 (June, 2010): 1626 sq ft, 3 BR, 1 bath, on .08 acre lot [2 Hovey Street, built 1880, building assessment $136,200; land assessment, $157,900; total assessment $294,100, down from $319,100 in 2009.]
• $290,000 (July 2010): 480 sq ft, 1 BR, 1 bath on .24 acre lot [16 Chattanooga Rd, built 1952; building assessment $49,700; land assessment $249,900; total assessment $299,600, down from $352,100 in 2009.]
• $279,000 (Oct 2010): 1092 sq ft, 3 BR, 1 bath, on .20 acre lot [2 Hodges Way, built 1959; building assessment $110,900; land assessment $166,500; total assessment $277,400, down from $300,400 in 2009.]
• $250,000 (July 2010): 1010 sq ft, 2 BR, 1 bath, on .14 acre lot [8 Currier Park, built 1935; building assessment $107,800; land assessment $161,400; total assessment $269,200, down from $281,100 in 2009.]
• $235,000 (June 2010): 912 sq ft, 3 BR, 1 bath, on .28 acre lot [27 Paradise Road, built 1970; building assessment $106,200; land assessment $180,700, total assessment $286,900, down from $315,200 in 2009.]
• $229,700 (Aug 2010): 720 sq ft, 1 BR, 2 baths, on .15 acre lot [3 Sawyer Street, built 1920; building assessment $75,400; land assessment $171,800; total assessment $247,200, down from $271,500 in 2009.]
• $209,000 (May, 2010): 1034 sq ft, 2 BR, 1 bath, on .09 acre lot [84 High Street, built 1860; building assessment $109,300; land assessment $167,600; total assessment $276,900, down from $290,000 in 2009.]
• $185,000 (Oct 2010): 1620 sq ft, 2 BR, 1 bath, on .29 acre lot [138 Linebrook Rd, built 1956; building assessment $145,400; land assessment $182,000; total assessment $327,400, down from $352,300 in 2009; note that Realtor.com values it at $286,997 as of 11/14/10]
• $170,000 (Aug 2010): 1182 sq ft, 3 BR, 1 bath, on .19 acre lot [3 Turkey Shore Road, built N/A; building assessment $104,000; land assessment $239,100; total assessment $343,100, down from $387,200 in 2009; note that Realtor.com values it at $302,124 as of 11/2/2010.]
• $160,000 (Aug, 2010): 1640 sq ft, 3 BR, 1 bath, on 1.04 acre lot [20 Lakeman's Lane, built 1948; building assessment $126,100; land assessment $283,500; total assessment $409,600, down from $449,900.  Realtor.com vales it at $420,520, as of 11/14/10]
• $160,000 (Oct 2010): 1386 sq ft, 5 BR, 1 bath, on .21 acre lot [8 5th Street, built 1910; building assessment, $118,000; land assessment $216,100; total assessment $334,100, down from $374,100 in 2009; realtor.com values it at $296,672 as of 11/4/10
• $120,000 (June 2010): 1386 sq ft, 3 BR, 2 baths, on .05 acre lot [2 5th Street, built 1910; building assessment $123,000; land assessment $97,700; total assessment $220,700, down from $237,900 in 2009;  realtor.com values it at $223,234 as of 11/2/10.]
• $80,000 (Aug 2010): 760 sq ft, 2 BR, 1 bath, on .18 acre lto [53 Jeffreys Neck Road, built 1943; building assessment $76,600; land assessment $174,000; total assessment $250,600, down from $276,900 in 2009; realtor.com values it at $227,594 as of 11/2/10.] 

(I suspect the last six of these might be situations where a co-heir to an estate bought out another heir, with the transaction price representing half of the value, but I can't be sure of that.)   Have any of the assessments been adjusted downwards in 2010 on the basis of the transaction price?  That might have been the case in a few situations(?)

If the landlords were collecting the full market rent on the Little Neck land, then the asking prices for the cottages on Little Neck would be in the range of 90% to 120% of the assessor's valuation of the buildings.

 

The tenants did not create -- could not possibly have created! -- any of the land value, despite what the "Little Neck Legal Action" committee asserts below.  The letter makes interesting, even humorous, reading, particularly in light of the fact that were there to be a sale, it would be the seller who would be paying off the debt on the wastewater system, not the buyers.  That wastewater system created some value, particularly if it ends up making it possible for more than 24 cottages to be used year-round.

Here are the various prices, divided by 167 current tenants and by 32 acres:

• $42,325,000 works out to $253,443 per average lot, or $1.3 million per acre (see letter, below).  Capitalized at 5%, an average land rent of $12,672, and aggregate annual gross rent to LN trustees of $2.116 million
• $31,500,000 works out to $188,623 per average lot, or $984,000 per acre (see letter, below). Capitalized at 5%, an average land rent of $9,431, and aggregate annual gross rent to LN trustees of $1.575 million.
• $10,000,000 works out to  $59,880 per average lot, or $305,000 per acre (see letter, below). Capitalized at 5%, an average land rent of $2,994, and aggregate annual gross rent to LN trustees of $500,000.  Compare $305,000/acre to the assessments on nearby land, particularly land with fine views and breezes; an acre is 43,560 square feet.
• $70,975,000 works out to $425,000 per average lot, or $2.2 million per acre (see my analysis, above). Capitalized at 5%, an average land rent of $21,250, and aggregate annual gross rent to LN trustees of $3.549 million.

(Compare those amounts per lot to the assessed values of the land, and then to the asking prices, above.  Did the assessor get it that wrong?  I suspect his LN land valuations are low.)

Here's the letter from the "Legal Action" committee to the local paper:

To the editor:

The School Committee’s recently released appraisal performed by Lincoln Property Company (“Lincoln”) establishes four things:

• It further discredits the Finance Committee’s continued assertion that the market value of Little Neck is $42.325 million. Lincoln states that Colliers Meredith & Grew’s (“CMG”) $42.325 Million estimate “is completely one-sided, ignoring that any value over … $10,000,000 is the result of a long term partnership between the Feoffee and the Tenants.” The Finance Committee’s claim was previously revealed to be without merit when the portion of the appraisal that the Finance Committee tried to hide from the public was released as a result of the Probate Court lifting a Protective Order. In their “supplemental letter”, CMG set the market value of Little Neck to a third party at $ 26.4 Million.
• In Lincoln’s view, the “fair value” of Little Neck may be as low as $20.5 Million. However, in summarizing the appraiser’s analysis of all relevant considerations, the appraiser specifically states the “market value of $31,500,000 … represents my opinion of the fair value of the property” to the homeowners in the specific “closed market transaction” contemplated here.
• The School Committee’s appraisal, completed in a more deliberate and professional manner than what the Finance Committee put forward, recognizes the significant value created by the tenant homeowners who have bought, built and/or improved their own homes. The Lincoln appraiser wrote, “Without the tenants’ improvements, the property would not contain the 167 grandfathered cottages and its value, according to CMG, would only be $10,000,000.” The appraiser clearly states that the tenant homeowners should not be compelled to pay twice for their part in creating the current value of Little Neck.
• The Lincoln appraisal offers further indisputable support for the $29,150,000 purchase price set forth in the settlement agreement between the Feoffees and the homeowners.

While the Little Neck Legal Action Committee (“LNLAC”) appreciates the good faith effort of the Lincoln appraisal, we believe that it does not appropriately take into account the potential adverse consequences to the School Committee of not affirmatively supporting the settlement agreement. The cost of not doing so includes:

• The direct cost of litigating the controversy in the Probate Court. At the Town Meeting in October, an additional $300,000 was authorized. If the Probate Court litigation is not resolved, the total cost to the School Committee will be dramatically higher.
• The Feoffees have already spent nearly $1 Million in legal fees on the presently stayed Superior Court class action litigation. If the settlement is not implemented and that litigation is reactivated, the four year history of no contributions by the Feoffees to the Schools will continue while the litigation drags on for many years to come.
• If the Homeowners prevail, the Feoffees may be ordered to pay many millions of dollars in damages, plus interest and attorney’s fees.
• Even if the Feoffees ultimately succeed in the Superior Court litigation, which LNLAC believes to be highly unlikely, they may still be compelled to pay the fair market value of each of the 167 homes on Little Neck of the tenants, which could easily exceed $16 Million.
• Under either scenario, the Feoffees would be unable to provide any funds to the Ipswich Public Schools for perhaps decades to come.

We believe that the settlement agreement is fair to all parties and that a rational review will bring all reasonable and clear minded parties to that conclusion. Should that not be the case, LNLAC is willing to allow the Probate Court to make the judgment as to whether the settlement agreement is, in light of all relevant circumstances, fair and reasonable. The School Committee is aware that the Feoffees have engaged LandVest and LNLAC has engaged Petersen/LaChance Realty Advisors to update their prior appraisals. At the end of the day, we anticipate that the Probate Court will conclude that the agreed upon figure of $29,150,000 is more than justified and supported by a careful review of the four appraisals at issue. We appreciate the deliberate approach taken by the School Committee and believe that responsible and professional analysis will be demonstrated by its members. We await the conclusion and closing of the settlement that will allow the School Committee and the school children for which it is responsible, to benefit from what we are advised will be the largest investment trust for any public school system in the commonwealth.

                                                         Mark DiSalvo and William Gottlieb

                                                         Little Neck Legal Action Committee

So what do you think?  Should the 2010 Ipswich citizens be in favor of selling this piece of land to the LNLAC at $29 million?  $40 million?  $70 million?  Or is this a priceless asset that ought to be kept, to serve its intended purpose for future generations of Ipswich students?  Should the Feoffees sell it, or simply collect, month in and month out, the market-value rent of the land?

Is there a statute of limitations on how long a public-spirited gift with growth potential should remain an asset for the benefit of the schools, or is the LNLAC arguing that the value of this gorgeous piece of land has peaked, to stagnate forever, and they're willing to accept the downside and the upside for a mere $30 million?

I just can't imagine how the discussion has ever gotten this far.  This asset was never to be sold.  And were the trustees to stop wasting it -- permitting tenants to remain without paying roughly market rent -- the schools would, as the donor intended, have a fine -- and growing -- income, forever.   "The largest investment trust for any school in the commonwealth" will provide a fine income to a lot of investment brokers and firms, but an inferior and declining income for the schools.  (Think about what the schools would have in 2010 if the trustees of, say, 1933, had sold Little Neck and invested the proceeds.  What do you think that fund would be worth now?  Remember the question: where are the customers' yachts?)    Keep the asset.  Collect the rent.  Repeat annually.

The alternative?  Sell it to the tenants now, and then watch some private equity or hedge fund swoop in and double the tenants' purchase price -- on a down payment made with escrowed rent! -- and then watch the investor hold the asset until the market improves and they can develop it. A win for the tenants, but what about the rest of Ipswich, and the intended beneficiaries?

Filed under "popular ignorance of land economics," "privatization," among other categories.  This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

Get Rich Quick Scheme

Invest in land or buildings?.

This is from Nicholas Rosen, writing in The Progress Report:

Some people think that land rents are not a significant percentage of GNP, or, when they hear "land reform," think only about agriculture, probably in the context of Third World latifundia.

If you believe that land rents don't matter in a modern economy, I have a wonderful get-rich-quick scheme for you! And I won't charge you a cent for my brilliant idea, so listen up!

I was looking at the real estate ads in the Washington Post (October 2, 2010, p. F1), and I observed that for just $271,000, you can buy a four bedroom, three bath contemporary chalet in Basye/Bryce Resort, Virginia, with screened porch and hot tub. It looks pretty nice, it has trees in the yard, and it was built in 2005. I'm not sure just where Bryce Resort is, so it must not be too close to DC, or I'd know more.

Other houses are more expensive. There's a three bedroom townhome (what used to be called a row house) in Alexandria, less than a mile from the Huntingdon Metro, for $579,000, more than twice as much, $308,000 more. Alexandria is on the Potomac, across from Washington DC.

What else can you buy? There's a three bedroom townhouse in Alexandria, for $642,800. There's also a white house, described as a 1920's classic, with the number of bedrooms unspecified, but a yard and landscaping of its own, for $1,250,000, nearly a million dollars more than the chalet in Bryce Resort. It looks attractive, but it's not a huge mansion. When I was a child, say in 1975, I think you could have bought a house like that in my home town for under $50,000, $60,000 at most.

So how do you get rich quickly? You buy houses in Bryce Resort, of course, and sell them in Alexandria at a $300,000 markup! Even after the costs of cutting up houses and moving them on flatbed trucks, you should come out way ahead. Buying and selling one house a year should give you a middleclass income, and if you work faster than that, you'll soon be set to retire rich.

Can anyone consider the obvious flaw in this scheme, and not realize that land prices matter? Land prices in Alexandria must be at least $300,000 for the land under a decent townhouse, more for the land portion of a home with a nice yard. Annual land rents must be about $10,000 or more for modest lots, several times that for bigger ones. This is not a trivial percentage of homeowners' incomes, or of GNP.

As a 19th century Georgist put it, instead of paying rent to a landlord and tax to the state, why not pay rent to the state and no taxes?

Every week when I scan the NYT's "What You Get" column, which showcases three homes currently on the market in various parts of the country, I wonder why the column doesn't provide the answers to the important questions?

• How far is each home from a vital job market?
• What share of the children in the local school district graduate from high school? attend 4-year colleges?  graduate from college?
• What sort of public goods and services and cultural amenities does the community offer?
• Must those who live there have a car for every working adult? 

I think Nicholas Rosen nailed it when he quoted a 19th century Georgist: instead of paying rent to a landlord and tax to the state, why not pay rent to the state and no taxes?

One Nation, Two Deficits -- and how to fix things

Playing catch-up ... this was in my "drafts" collection.

One Nation, Two Deficits - Readers' Comments - NYTimes.com.

I was happy to read this comment to Peter Orzag's recent column, which ends, "Senate Democrats and Republicans almost never come together anymore. This month, they should fight the dual deficits rather than each other. Let’s continue the tax cuts for two years but end them for good in 2013."

The comment comes from Frederick Singer, of Huntington Beach, CA, September 7th, 2010:

Extend the tax cuts for two more years, then introduce a new tax formula that is simple to define and easy to enforce and is both progressive and pro-growth.

Eighteenth century economist Henry George had an idea he called the Single Tax, also known as the Land Value Tax. Essentially, there would be no income or sales tax, only a tax on the value of land. Not to be confused with a "property" tax, the Single Tax would apply only to the land, not to any buildings or equipment.

Simple to define and enforce: The tax would be "x" percent of assessed land value, no exceptions. You can try to hide income but you can't hide land.

Progressive and pro-growth: Wealthy people are disproportionate owners of high priced real estate and would pay most of the taxes, but the marginal tax on both income and consumption would be ZERO. A win-win for liberals and conservatives.

The philosophy: Henry George believed that money you earn from own efforts, from your skills, profession or business belongs to you 100%. But the part of your wealth that comes from your ownership of land derives from the economic activity of the surrounding community ("location, location, location") and is therefore fair game for taxation to support that community. In other words, your own business may be doing lousy, but the land under your business may still be very valuable due to regional economic conditions - and you could close the business and profitably sell or rent the land to someone else. Money earned or wealth accumulated from land ownership is the true definition of "unearned" income.

Could the Single Tax raise sufficient revenue? If my math is right, taxing all the privately held land in America at an average of just ten cents per square foot (obviously, higher in some places, lower in others) would yield about six trillion dollars - which I believe is in the neighborhood of current total federal, state and local government spending.

Most importantly, the Single Tax would send the message that you make money by creating useful products and services, not wheeling and dealing in real estate.

For more information, Google "Henry George"

You might also read Fred Foldvary's paper, "The Ultimate Tax Reform."

10 cents per square foot per year would be an average of about $500 for a standard 50x100' lot.  But some land is worth considerably less in annual rent, and some is worth significantly more.   There are lots that size in major cities which sell for many, many millions of dollars, and farmland is worth considerably less than that average (except, perhaps, in a few wine-grape counties).  Quick-and-dirty, the annual value of a $1 million lot is $50,000.  The annual value of a $100,000 lot is $5,000. 

Most of us own land worth considerably less than $100,000 (the major exceptions being homeowners in certain parts of California and near a few coastal cities), and ownership of those $1,000,000 and $5,000,000 sites is pretty well concentrated in high-income -- and, almost by definition, high net-worth folks.   Such land is also owned by corporations and so-called "small businesses."    The owners of such land would much prefer that your labor and mine, your buildings and mine -- and theirs, too -- your purchases and mine -- and theirs -- be taxed, rather than collecting the rental value of the land they call their own.  They like the way the current set of privileges bring them returns they don't have to work to earn, and which their heirs will enjoy, too.

Trickle Down Economics: The Very Useful Idiocy of Christine O’Donnell (Frank Rich, NYT)

Op-Ed Columnist - The Very Useful Idiocy of Christine O’Donnell - NYTimes.com

"Rove’s flip-flop was no doubt hastened by his own cohort’s assaults on both his ideological purity and masculinity. The blogger Michelle Malkin labeled him an “effete sore loser,” and Sarah Palin publicly instructed him to “buck up.” But surely the larger motive for his retreat was the dawning recognition of just how valuable O’Donnell is to the G.O.P.’s national aspirations in November — even should she ultimately lose her own race in blue Delaware. Whatever her other talents, she’s more than willing to play the role of useful idiot for her party. She gives populist cover to the billionaires and corporate interests that have been steadily annexing the Tea Party movement and busily plotting to cash in their chips if the G.O.P. prevails."

While O’Donnell’s résumé has proved largely fictional, one crucial biographical plotline is true: She has had trouble finding a job, holding on to a home and paying her taxes. In this, at least, she is like many Americans in the Great Recession, including the angry claque that found its voice in the Tea Party. For a G.O.P. that is even more in thrall to big money than the Democrats, she couldn’t be a more perfect decoy.

By latching on to O’Donnell’s growing presence, the Rove-Boehner-McConnell establishment can claim it represents struggling middle-class Tea Partiers rather than Wall Street potentates and corporate titans. O’Donnell’s value is the same as that other useful idiot, Michael Steele, who remains at the Republican National Committee only because he can wave the banner of “diversity” over a virtually all-white party that alternately demonizes African-Americans, Latinos, gays and Muslims.

 

LVTfan here:  I keep hoping that an interviewer or moderator will ask Ms O'Donnell whether she supports or is opposed to the Federal government continuing to fund the regular replenishment of the sand on the ocean beaches of Delaware and Maryland.  Many of the voters throughout Delaware own well-located beach homes in one state or the other, on which they pay annual property taxes well under $2,000 per year -- including many homes which collect summer rents of $20,000, $30,000 and (far) more.  These are often modest homes, made valuable by their proximity to the beaches; those which have had no building-permit work have annual taxes well under $1,000.   [The state and county each collect 1.5% of the purchase price at closing when homes change hands -- perhaps 20 years' worth of property taxes!  And renters may pay a 3% rental tax -- which may be more than the owners pay annually!]    The Atlantic Ocean beaches of Delaware and Maryland are "the nation's summer capital," the playground for residents of the Washington, D.C., Baltimore, Philadelphia and Wilmington metro areas.   Traditionally, they have been funded by federal taxes.

I suspect that the answer to that question may be a useful one for many voters all over Delaware, and will be of interest to southern Delaware's small business owners, and to people who vacation on and near those beaches.

I look forward to O'Donnell's answers.

Ben Stein's Money

Last weekend, Ben Stein apparently presented a piece on CBS News, entitled "Raising My Taxes is a Punishment: If Raising Taxes Won't Help Economy, Why Am I Being Punished."  Stein, the son of two Chicago-educated economists, writes,

I am a fairly upper income taxpayer. Not anything even remotely close to sports stars or movie stars or financial big boys. But I am above the level Mr. Obama says makes me rich. So, in the midst of a severe recession, I am to have my taxes raised dramatically.

I am not quite sure what my sin is.

I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax. I have a hell of a lot less than I did before the stock market and real estate market crashes. I didn't get a bailout or any part of a stimulus program, except for traffic jams as the roads in Beverly Hills got worked on for the 10th time in the last 10 years (or so it seems).

I pay my income taxes, and after them and the commissions I pay my agent, I am left with about 35 cents for every dollar I earn.

I own some real estate in California and Idaho and the District of Columbia. Naturally, I pay property tax, supposedly mostly to educate local children. Not far from me, the city of Los Angeles just spent about $600 million to build the most lavish school in America for about 4,000 children. That's my money. Naturally, I had no say in it. My wife and I have no children in public schools and only did for about eighteen months long ago. I still pay my school tax ever year.

I am not asking for any tears. I live a great life, have a fabulous wife, a great son and daughter-in-law, four wonderful, furry dogs and six cats, all adopted. I have more than enough to eat.

But what I don't get is this: There is no known economic theory under which raising my taxes in the midst of a severe recession will help the economy recover. It isn't part of any well known monetarist or Keynesian theory. So if it does no good to raise our taxes, I assume we are being punished.

But for what? I don't own slaves. I employ a lot of people full- and part-time and they are all happy with their pay. When charity calls, I almost always write out a check. I don't have a yacht or ponies or a plane. My wife doesn't wear a tiara. I don't gamble.

What did I do wrong? I know I have often lost my temper with my wife and the cats, but that's not a crime, yet. I tried to be successful, which is what I thought I was supposed to do. When did it turn out that was a crime to be punished? Maybe when the economy recovers, raising my taxes makes sense, but for now, it's just punishment, and I can't figure out what for.

As Krugman pointed out in his blog,

OK, the late, great — and I mean that — Herbert Stein died in 1999. At that time the first $650,000 of an estate was tax-free — $1.3 million for a couple, provided it did what CBO calls “minimally competent estate planning” — with a 55% tax on the amount above that.

So either Ben Stein inherited several million dollars — which, although this may be news to him, is not the experience of most Americans — or he’s just making stuff up.

And in an October, 1999, column in Slate, entitled "My Father's Estate,"  Stein wrote,

He did indeed leave some money. By the standards we read about in the Wall Street Journal or Sports Illustrated, it was not worthy of much ink. In any event, because of the class-warfare-based death tax, the amount that will be left is vastly less than what he had saved. As an economist, my father was famous for defending taxes as a necessary evil. But even he was staggered, not long before his death, when he considered the taxes on his savings that would go to the Internal Revenue Service.

The nest egg is going to be taxed at a federal rate of about 55 percent, after an initial exemption and then a transition amount taxed at around 40 percent (and all that after paying estate expenses). When I think about it, I want to cry.

Later, referring to his father's writings,

Some of them will go to the Nixon Library, and some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu, a place he found beguiling because he had always wanted to live by the ocean and write.

In the NYT in 2006, in a business story entitled "You're Rich?  Terrific.  Now Pay Up" he wrote,

Something flashed into my mind — something that my late father used to say, quoting loosely from the economist Henry C. Simons, a founder of the Chicago School of economics: that it is "unlovely" to see the extremes of wealth and nonwealth that are evident in contemporary America.

We may be able to live with it. Some of us may even be able to prosper amid it. But it's not pretty. The rich should simply not be that much richer than everyone else — especially those whose lives protect them from terrorism.

and later in that same piece,

The real problem is the difference between the rich — including rich oil people, of whom there are not many, but there are enough — and the poor. It is up to the government to redress this extraordinary difference in incomes of the rich and the nonrich, even at the margins.

What Congress can do, and should do, is address the stunning underpayment of military men and women and the staggering budget deficits that will be a burden on our posterity for decades, by raising the taxes on the rich. It's fine that there are rich people. It's even fine that there are superrich people.

But if they are superrich, they derive special benefits from life in the United States that the nonrich don't. For one thing, they can make the money in a safe environment, which is not true for the rich in many countries. It is just common decency that they should pay much higher income taxes than they do. Taxes for the rich are lower than they have been since at least World War II — that is to say, in 60 years.

This makes no sense in a world at war, in a nation with so many unmet social needs, in a nation with so many people without health care, in a nation running immense and endless deficits.

America is becoming a nation of many rich people. I recently read that there were close to 10 million millionaire households. I read that there were hundreds of thousands who made more than $1 million a year. Good for them.

But it's unlovely for them to pay as little tax as they now pay. The real problem in this country is only temporarily about oil. That will right itself, or we'll get used to it and adjust.

The real problem is saving a nation that is beset by terrorism, and we cannot do that unless we feel that we are all in the same boat, pulling at the oars together. That includes the rich.

Whatever rationale there may have been in 2001 for lowering their taxes is long gone. It's time for them — us, because it includes me — to pay their (our) share.

It's not about oil. It's about fairness.

Let's go back to his recent comment, "I worked for almost every dollar I have, except for a small percentage my parents left me by virtue of hard work and Spartan living, and most of that was taken by the federal estate tax.  ...  I own some real estate in California and Idaho and the District of Columbia." and his 1999 comment, "some will be on bookshelves in the (very small and modest) house my wife and I own in Malibu," on which (2010) " ... naturally, I pay property tax, supposedly mostly to educate local children."    And if, perhaps, he used those inherited dollars to buy some of his real estate, which has appreciated mightily in the intervening years, his "I worked for almost every dollar I have" is a bit disingenuous (buut consistent with Edward Wolff's findings, which imply that the amount inherited is often a small piece of large fortunes -- ignoring, of course, the contribution that a fully-paid for education in private primary, secondary, college and graduate schools might make, or any inter vivos gifts such as help with a downpayment on a home in the early working years, might make to an eventual fortune -- or sense of entitledment.

I don't know whether Idaho has a lot of children to educate, but California and Washington, D.C., certainly do.  And property taxes are generally used to provide the public goods and services which help maintain and increase property value.    California property values have risen significantly since he acquired his property; I assume that he attributes that appreciation to his hard work.  But an economist who thinks deeply would recognize that he can take no credit for it.   Even a small and modest home in that location is worth an amount far beyond what 95% of Americans could afford. 

I am reminded of Warren Buffett's 2004 pre-Schwarznegger election interview in the WSJ and his post-election LTE, referring to properties in Malibu Laguna , in which Buffett he pointed out (a) how low those property taxes are; (b) how fast Malibu property appreciated,  and (c) how unrelated to the market value of Malibu homes the property taxes of long-time owners are.

• "The first Laguna Beach house is a property that I bought in the early 1970s. It has a current market value of about $4 million and, because of the limitations embodied in Proposition 13, carried taxes of only $2,264 in 2003 vs. $2,241 in 2002.
• The second house, located just in back of the first, is one that I purchased in the mid-1990s. It has a market value of about $2 million and, simply because I bought it later than the first, carried taxes of $12,002 in 2003 vs. $11,877 in 2002."

and Buffett later continues, "My sympathies are clearly with the "non-billionaire" family purchasing a $300,000 house in Chico today that faces real estate taxes materially higher than those borne by this non-resident billionaire on his $4 million house in Laguna. This family, because of Proposition 13, has been selected to subsidize me."

Back to Stein's "My Father's Estate" (1999):

He never once in my lifetime's recall said that any man or woman deserved special respect for riches -- in fact, like Adam Smith, he believed that the pleadings of the rich merited special suspicion.

Enough said.

If you'd like to read more about how Ben Stein sees wealth concentration, explore this piece in which he explains away any problems with corporations taking advantage.  I read it in January (and commented), and heard him deliver it again in April.

 

How to Increase America's Saving Rate: Rich Americans Save Tax Cuts Instead of Spending

Rich Americans Save Tax Cuts Instead of Spending, Moody's Says - Bloomberg.

Well, from time to time, we hear that Americans aren't saving enough, and sometimes columnists ask for suggestions of how we might increase America's savings rate.

Moody's has provided the answer: cut federal income taxes on the highest income people, and they will save a significant portion of it.   (The question arose because some say that in order to facilitate job creation, we ought to avoid increasing federal income taxes on the portion of taxable income over $250,000 per year.)

If the goal is to produce savings at the median, or at the 25th or 75th percentiles, or at the 10th or 90th percentiles, reducing taxes on the highest-income 2% or so is not going to serve the purpose.   But it will satisfy the "increase America's saving rate" goal.

Before we went into this recent "bust" portion of our 18-year boom-bust cycle, a shocking proportion of Americans lacked sufficient savings to provide even a poverty-line existence for their families for as short a period as 3 months.  (Edward Wolff of NYU wrote the study on this.)   Most of us live paycheck to paycheck.

The notion of saving for a "rainy day," or even of saving to buy one's next car for cash, seems quaint and of-another-era, with so many of us paying more than 40% of our income for housing.  (Yet we don't complain about owing our soul to the company store.  Now it is the FIRE sector we owe.)    And look at the measures we've used to substitute for people's inability to save a 20% down payment on a starter home!

But the best-off among us -- both those who have large amounts of wealth and many of those who receive high wages or high profits on their "labor" (even if their labor consists of reaping that which other people sowed, they do regard it as labor, and sometimes the IRS does, too -- unless they run hedge funds, in which case it gets treated just as if they'd actually invested their own capital in a way a corporation could use to enhance its operations!) -- can and do save and invest.   And clearly this is an aspect of the wedge driven through society which Henry George described 130 years ago, driving some up and the vast majority down.

The wealthiest among us own, and take opportunities increase their holdings of, the corporations -- public and private -- which hold our best land (urban, oil-laden, etc.) and our non-renewable and/or otherwise finite natural resources.  (See "stock ownership" in the tag cloud at left for the data.)  We praise them as if they are somehow self-made, and let them parade about as such, and we gratefully accept their charity -- tulips and swimming holes on Park Avenue -- as if it made up for what they and their ancestors stole from us and ours, and what their children will reap from the labor of our children.   We don't see the structures by which they do it -- we're so used to them that they are, like the air we breathe, invisible to us.   But 120 years ago, most Americans did understand them.  (Explore the free NYT archives, 1880 to 1900, for the name of Henry George, and do some reading.  I suspect even the American history and American Studies majors will be surprised.)

 

Obama to Call for $50 Billion Public Works Plan

Obama to Call for $50 Billion Public Works Plan - NYTimes.com.

WASHINGTON – President Obama on Monday is to call for as much as $50 billion in government spending to start up a long-term public works plan emphasizing transportation projects – roads, rail and airport runways – over the next six years.

Okay.  Sounds good.  This is what some people have called Pork, when the money has been invested in other people's congressional districts. 

Good infrastructure projects are very worthwhile, and, properly conceived, well designed and well executed, will serve the public for decades, perhaps many generations.  Look at what the CCC accomplished during the Depression.  Look at the Interstate Highway system.  Look at the service that commuter rail and, in some places, intercity rail offers.

But local government has failed to follow through.  Federal investment in infrastructure is the "1" of the "1-2 punch," but if local, county or state governments fail to respond appropriately, much of the benefit is lost.

Every worthwhile infrastructure project creates (or in the case of necessary maintenance, maintains) far more land value than the cost of the project.  Consider:

• the George Washington Bridge across the Hudson created how much land value in northern New Jersey?
• the Golden Gate Bridge created how much land value in Marin County, California?
• the Tappan Zee Bridge across the Hudson created how much land value in Rockland and Westchester Counties?
• the Northway created how much land value north of Albany, New York?
• the Verrazano Narrows Bridge created how much land value on Staten Island?

Who benefited?  The landholders!  Federal dollars were poured into these projects, and individual landholders reaped the windfall we created.  Their communities and counties and states could have taken two simple steps to recycle that value -- and still can!:

1. Assess the land value every few years.  (Assessing land value is not expensive or difficult to do well, if one sets out to do it.  Unfortunately, many assessments are focused on buildings, or on the property as a whole, and only later assign a land value, which may bear little relation to market values.)
2. Collect some significant portion of the value which results from federal, state, county and local investment in infrastructure and services.   Don't tax the buildings.  Don't tax sales.  Don't tax wages.  Just the land value. 

And if the local, county and state governments don't see fit to collect that value for local, county or state purposes, the federal government ought to be able to step in and collect it.  After all, WE created it.  It doesn't belong in private pockets.  And if we collected it, we could reduce or eliminate the dumb taxes which burden our economy.

Which is the whole point of stimulating the economy, isn't it?

Unless, of course, we're doing it for the benefit of the 10% of us who receive about 48% of the income, or the slightly different 10% of us who own 71.5% of the net worth, in which case this is a very poor idea.  Remember what Leona Helmsley told us:  "WE don't pay taxes.  The little people pay taxes."

Shall we create more unearned income for them?  Or shall we create incentives for localities and states to recycle that value, with the option of collecting it for federal purposes if they choose not to?

Housing Choice - Help Today’s Owners or Future Buyers?

Housing Choice - Help Today’s Owners or Future Buyers - NYTimes.com.

Here are the opening paragraphs:

The unexpectedly deep plunge in home sales this summer is likely to force the Obama administration to choose between future homeowners and current ones, a predicament officials had been eager to avoid.

Over the last 18 months, the administration has rolled out just about every program it could think of to prop up the ailing housing market, using tax credits, mortgage modification programs, low interest rates, government-backed loans and other assistance intended to keep values up and delinquent borrowers out of foreclosure. The goal was to stabilize the market until a resurgent economy created new households that demanded places to live.

As the economy again sputters and potential buyers flee — July housing sales sank 26 percent from July 2009 — there is a growing sense of exhaustion with government intervention. Some economists and analysts are now urging a dose of shock therapy that would greatly shift the benefits to future homeowners: Let the housing market crash.

It seems as if the suggestion is that we ought to let the housing market crash, and then hope that we will pick up again where we left off, and experience this boom-bust cycle again.

There doesn't seem to be much discussion of the factors that produce the boom-bust cycle, or of the notion that we can actually prevent the next boom-bust cycle through wise policy.

What policy?  A tax shift.  Shift taxes off wages (starting at the bottom); off sales (starting with essential items); off buildings of all kinds and equipment.  What's left to tax?  

That which we should have been taxing all along: the value of land.   Henry George (b. Philadelphia, 1839; died NYC, 1897) introduced the idea in his 1879 book, Progress and Poverty, which remains 130 years later the best selling book ever on political economy.  It sold over 6 million copies by 1900, and George, Thomas Edison and Mark Twain were perhaps the three best-known public figures of their day.  George's "remedy" came to be known as the "Single Tax."  It was a recipe for small government -- right-sized government, funded by the only legitimate revenue source: value created by nature and by the community.  Land, to the classical economists -- Adam Smith, David Ricardo, John Stuart Mill, Henry George, etc. -- was distinctly different from capital. (The neoclassical economists -- and those who only know their sort of economics -- can't seem to see the difference, and conflate them, leading to all sorts of stupid -- and unnecessary -- messes!)  Land includes not just the value of locations (on earth, in water, in space) but also electromagnetic spectrum, water rights, non-renewable natural resource values, pollution "rights," and lots of other like things.  (Mason Gaffney provides some excellent lists.)   Those locations include urban land, land made valuable by favorable climate, water supply, access to ports, to transportation systems, to desirable views, to vibrant cities with jobs, cultural amenities, educational opportunities; geosynchronous orbits; congestion charges; parking privileges, etc.    Those of us who claim title to a piece of land ought to be required to compensate the community in proportion to the value of that land, for the right to exclude others from it.  That compensation should be paid month in and month out, to the community.

Our current system is perverse.  We must purchase the rights to the land from the previous holder at whatever price the market will bear, or what the seller's circumstances require him to accept.  Rich landholders can hold out for higher asking prices; poorer ones may be forced to accept lower prices.   Few of us enter the market with more than a few percent of the asking price in hand; we mortgage our future earnings in order to pay the seller's asking price. 

In most coastal cities, that price is predominately for the location, not for the building itself.  A May, 2006, Federal Reserve Board study found that land represented, on average, 51% of the value of single family housing in the top 46 metro markets in 2004; in the San Francisco metro, land represented 88.5% of the value, and in no metro in California did it represent less than 62%.  Boston metro was around 75%, NYC metro was about 70% (I'm doing this from memory), Oklahoma City about 20%; Buffalo about 28%.   Extrapolating from some of their tables, I found that the average value of a single-family structure across the 46 metros was about $112,000, with a range from perhaps $88,000 in the lowest metro to a high of perhaps $130,000 in the highest.  The range of average land values across the 46 metros, though, was much wider, from perhaps $25,000 to $750,000! 

Suppose we did let the housing market crash, and then shifted over to George's proposal, collecting our tax revenue first from land rent, and only after we'd collected the lion's share of the land rent, tapping other less desirable revenue sources such as wages, sales and buildings.  What would happen?

• The selling price of housing would drop to approximately the depreciated value of the structure in which one would live.  A large new house would be more valuable than an older house of the same size.  A large house would cost more than a smaller one.  But one would not pay the seller for value that related to the location of the home.
• One would pay, month in and month out, the rental value of the land on which the house sits.  Fabulous locations would require high monthly payments; less fabulous ones would have lower monthly payments.  Small lots would pay less than larger lots nearby.  Owners of condos in a 20-story building would share the cost of the land rent for the site, perhaps in proportion to the quality of their location within the building (fabulous views would pay more than ordinary ones; larger footprints and/or more floors occupied would pay in proportion to their share of the total space).
• That monthly payment would go to one's community, and would replace one's property tax, sales taxes, wage taxes.  A portion of the payment would be forwarded to one's state, and at the state level, a portion would be forwarded to the federal government.
• The selling price of housing would drop, requiring one to borrow far less.  The difference would be quite pronounced in San Francisco, Boston, NYC, etc.   One's monthly mortgage payment would be significantly lower.  
• Housing would no longer be an investment, in the sense that one expected to sell a property for more than one paid for it. 
• Housing would be more liquid; one could own a home, but have a reasonable expectation of being able to sell it if one wanted to move elsewhere.
• The credit not used to purchase homes would be available for businesses.  Businesses, too, would not be "investing" in land, but would have capital available to invest in equipment and to pay better wages to their employees.
• Land which under our current system is both well-located and underused would either be redeveloped by its owners, or come onto the market so that someone else could put it to use.  There would be no incentive to keep it underused, as there is today.   The redevelopment process itself would create jobs in construction-related businesses, and the resulting buildings would either provide housing or commercial venues -- or both: whatever the market was asking for.  And that housing would be at a wide range of points on the income spectrum and the ages-and-stages spectrum: young people starting out, families, retirees, singles, couples -- not just the luxury market.   And those newly-created homes would be closer in to the jobs which would support them, rather than separated by long commutes and drive-till-you-qualify.
• Land made valuable by public investment in infrastructure and services would provide a continuous revenue stream to the community, providing funding for next year's services, instead of funding for self-selected individuals' retirement.
• So if one can't hope to get rich from the appreciation of the land under one's home, how is one to have security?  How does one participate in the economy?   By investing in businesses that serve customer desires.  And when one's housing plus taxes are lower, one has more left over for that.  When there is enough housing for all, one isn't paying so much of one's income for it.  When no one expects to grow wealthy automatically, people can dream up the business which they will enjoy working in.  And with so many businesses competing for workers, wages will tend to rise.  With so many businesses competing for customers, services will improve, and specialization increase.

Back to the title of the article: "Grim Housing Choice: Help Today's Owners or Future Buyers?"    Maybe economics doesn't HAVE to be the dismal science.  Maybe our choices are not so grim after all.   Maybe we can put ourselves on a firmer footing, without the boom-bust cycles we've been experiencing so regularly.  (See Mason Gaffney's recent book, After the Crash: Designing a Depression-free Economy.  And while you're on that site, you might read "The Great Crash of 2008" and "How to Thaw Credit Now and Forever.")   Maybe we can leave our children a society in which all can prosper. 

Not too much to ask for, is it?

Or shall we leave them a society in which 10% of us are receiving 48% of the income, and 10% of us possessing 71.5% of the net worth.

Which side are YOU on? 

How to End the Great Recession

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.

This time around, policymakers had knowledge their counterparts didn’t have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We’re left instead with a long and seemingly endless Great Jobs Recession.

THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity.

via www.nytimes.com

I think Robert Reich sees part of the problem, but he doesn't see the solution.   How do we achieve more widely shared prosperity?  By a variation on Alaska's theme.  In Alaska, a significant share of the value of the state's natural resources is used to fund state government, and another significant share is placed each year into the Alaska Permanent Fund, which is invested in a broadly diversified portfolio and pays an annual dividend of $1000 to $2000 to every permanent resident of Alaska, of all ages.  [See http://www.nytimes.com/2010/09/04/us/politics/04alaska.html for an article mentioning this, and the Alaska Permanent Fund link, at the left of this page.]   Alaska has it half right: they collect a decent share of the value of the natural resources, but they don't tax their land value much.

How do we share the prosperity beyond the top 10%?  By shifting our incentives so that those who currently grow wealthy in their sleep by collecting economic rent find themselves sharing that rent with the rest of us.  Untax wages, starting with incomes under the median.  Untax sales.  Untax buildings.  Tax land value.  Tax the value of those things which the classical economists would have recognized as land -- water rights, "rights" to pollute, airport landing rights at congested airports, geosynchronous orbits (which prevent satellites from bumping into each other), electromagnetic spectrum (those airwaves which most people would say "belong to the American people" but which we have permitted corporations -- public and private -- to privatize), natural resources such as oil, natural gas, copper, coal, lithium, etc..   All these things are going into corporate portfolios (here and abroad -- and some of those corporations are families in power, despite attempts at nation-building), week in and week out, and their value accrues to the shareholders of the corporations.  Stock ownership is quite concentrated, and these benefits flow into the pockets of a relative few, who, as Reich rightly points out, may or may not spend or invest in America's products.  When they do invest, they often acquire our best land and resources, buying thereby the labor of thousands of Americans.  When an acre in Manhattan can be worth $400 million, the seller of that land didn't make it valuable.  WE did!  So why should an individual, or a corporation, or a trust, or a university, or a pension fund -- or any private entity -- get to pocket that value as if they did?   (The kindest thing I can say is that we have a bad habit!  Something like chattel slavery -- and look at how long it took us to end that.)

Pocketing that value has two sorts of effects: when they sell, they pocket that so-called "capital" gain.  It isn't capital!  It is land value!  Capital depreciates; what rises in value is land, and it rises for reasons which have nothing at all to do with the "fellow" who owns it.  

But even when they buy and hold, there are important effects of permitting that privatization.  The rich don't need to put the land to its highest and best use, because they can get by with something less while they wait for the community to cause it to grow.  (See The Taxpayer at 72nd and Madison.  Notice all the surface parking lots in Manhattan, Philadelphia, Hartford and many other cities.  See the 4.3 acre "hole in the ground" in Stamford, CT, right near the city's 100% location, vacant since the early 1980s.) They're patient!  They can afford to be.  The top 10% of us hold 71.5% of the chips, according to the 2007 Survey of Consumer Finances.)   Not using the land well reduces the supply of housing close to the center of things (adding to sprawl) and/or of jobs (which we say we want) and contributes to a wide range of our most serious social, economic, environmental and justice problems.

If we collected more of the annual rental value of our urban land, the holders of that land would turn into active users or sell it to someone who would put it to good use.  Good use creates jobs, and homes and other things that the market wants.  But when the market can't afford them, it does without.  People are priced out of housing in the places they'd prefer to live.  They lack jobs or are underemployed, and the rich keep getting richer.

Reich advocates extending the EITC, exempting the first $20,000 of wages from payroll taxes, improving and extending early childhood education, making public universities free in return for 10% of the first 10 years of full-time earnings, creating "earnings insurance."  He concludes,

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

Well, 130 years ago, Henry George spoke to some of the kinds of measures that have been proposed over the years for reducing poverty and promoting widely shared prosperity.  See "Part VI -- The Remedy" and particularly "Ineffective Remedies" and "The True Remedy"

"Ineffective Remedies" begins,

OUR CONCLUSIONS point to a solution. It is so radical that it will not be considered if we believe less drastic measures might work. Yet it is so simple that its effectiveness will be discounted until more elaborate measures are evaluated. Let us review current proposals to relieve social distress. For convenience, we may group them into six categories:

1. More efficient government
2. Better education and work habits
3. Unions or associations
4. Cooperation
5. Government regulation
6. Redistribution of land

That 10% of us who hold 71.5% of the net worth also received 41.3% of the current income. [Note that these percentages are understated, since the SCF purposely omits the Fortune 400 families.  They hold about 1% of the nation's net worth.] 

Picketty & Saez provide annual updates on income concentration.  For 2008, they report that the top 10% of us (sorted by income, not net worth) received 45.60% of the income when capital gains are excluded and 48.23% of income including capital gains.   (For 1988, the corresponding figures are 38.63% and 40.63%; in 1958, 32.11% and 33.56%.   Do we notice a trend here?  Do we like it or think it a healthy trend?)

We have permitted and supported a structure which funnels wealth and income into relatively few pockets.   We have to reform this structure, and we have to recognize that the current beneficiaries are not likely to be keen on reform -- conservatives have a lot to conserve for themselves -- and those who are dependent for their salaries on being popular with those beneficiaries are not likely to be particularly interested in looking at the underpinnings of the structure with an eye to removing some of the ladders (escalators!!) or  gentling the chutes.

Those who get to privatize the value of what ought to be common assets grow wealthy in their sleep.  Until enough of us understand the mechanism to constitute a majority, we aren't likely to correct it.

 

It is a bit disheartening to think how many well-regarded economists live in California, the land of Proposition 13, and haven't lifted a finger or opened their mouths to suggest that it is not in the best interests of California's people.   Milton Friedman acknowledged many times that the tax on land values was the "least bad" tax -- and didn't have anything to say about Proposition 13, which was the antithesis of what a wise person or society would do with that information.    So I guess I shouldn't be surprised that today's California economists, with very few exceptions, aren't all that concerned with the economic wellbeing of ordinary people any more than economists elsewhere are.  Or maybe, as my late mother would have expressed it, their educations have simply been neglected.  (At which point she would proceed to fill in my newly-identified knowledge gap.)    Economists can start with the links in this post, and then explore from there.

Earned Income: Public and Private

I came across a pamphlet published in 1949 by a foundation on whose board I sit, and while there are some things that I might emphasize differently 70 years later, I thought it worth sharing.   It speaks to a category I've just added to the "cloud" at left: Natural Public Revenue.

Today we see some additional privileges which corporations (and individuals) are taking advantage of -- the privilege of polluting the world's finite supply of air and water beyond its carrying capacity and ability to heal itself; the privilege of claiming as their own the supply of various other natural resources: e.g., oil, natural gas, lithium, copper.   The privatization by corporations of what ought to be revenue sources for common spending should not go unremarked.   And trivializing monopoly, as I think the author does, seems odd in light of what we've seen in the intervening years.

Earned Income: Public and Private
by Joseph S. Thompson
President, Pacific Electric Manufacturing Corp.

THE FATES of America and Europe are inextricably one. A depression here could ruin us and would ruin Europe. We dread a depression; yet we have done nothing salient or radical to prevent it. The Soviet Politburo eagerly predicts and awaits it.

The basic reason why there are depressions and why prosperity is not normal, general, and constant is that we do not distinguish between TRIBUTE TO PRIVILEGE and RECOMPENSE TO SERVICE, and are indifferent to their diametrically opposite effects.

The fault is not in our political system, the freest and best yet devised. It is not in our industrial system which, based on service, saved the world from German domination and will continue to serve us well unless stifled by "Planned Economy," as planned economy has stifled industry elsewhere.

But when we study our taxation system we find a cancerous growth, developed in the last few years, that threatens to destroy all that makes America great, fostering privilege and hampering industry and service. We take for granted the principles underlying our present taxation system; yet adherence to those principles means national disaster.

The full breadth and importance of Chief Justice Marshall's statement that "The power to tax is the power to destroy" seems never to have been wholly grasped or emphatically enough expressed. Taxation destroys good things as well as bad. The power to tax is the power to control a destructive force and, when used, becomes equivalent to a fine. A fine represses, and a tax represses. Simple reasoning develops the fact that a tax is automatically and undeniably a fine. It is an arbitrary seizure of private earnings or acquirements, based on arbitrary opinion, and the fact that the money is used for public purposes does not justify its imposition.

But since money is required for public purposes, how else is it to be provided? The answer is simple: through earned public income.

We are all familiar with earned private income, earned through labor, service, or investment, but few have inquired as to whether there might be a true, just earned public income -- an income that we all, as the public, create and earn jointly as a common wealth just as the individual creates and earns his income as private wealth -- an income that can be measured by fact and not by opinion, forming the basis for, and fixing the limit of, responsible public budgeting -- A PUBLIC INCOME PUBLICLY EARNED AND TO PUBLICLY COLLECTED.

Those who have inquired have been answered by the Physiocrats, by Thomas Carlyle, by Patrick Dove, by Herbert Spencer, by John Stuart Mill, and, in full and complete analysis, by Henry George in his great book, Progress and Poverty. These men have shown that the public income is closely measured by, and reflected in, and therefore should logically, justly, and intelligently be, the rental value of the land.

The rental value of the land, which is the amount that individuals will pay for its exclusive use, if collected or "taxed" by the public, would provide and define the rightful earned income of the public, to which the budget should conform.

Land costs nothing in human effort or creativeness and gets its value only from the presence of people; so, land rental value might better be called location value; and since location value means land in a desirable place among people, land value and location value are really people value. The landlord's title to the land is a legally created privilege. It represents no contribution on his part but gives him an unearned tribute (and it is unearned even though it was bought with money that was earned). Solely by their presence the people create this value, and it is theirs. The people should collect it and nothing else. Arbitrary assessment might have to be resorted to in time of emergency, but, as it is now understood and imposed, taxation should be reserved as a regulative or repressive curb on acts counter to the public interest.

It sounds like quibbling to speak of abolishing taxes while advocating the public collection of land rent; and, since the assessor would define and impose it, and the tax collector would collect it, it does look like a tax on land. But it is not a tax on land. It is payment for the privilege of an advantageous location among people.

It is easy to "capitalize" such an amount. Figure the capital that would earn interest equal to the rent offered. The value of the land is thus set by the rent. Assess it at that value, tax it at the current interest rate, and the public would then collect the value it creates. Taxes would no longer raise the cost of living.

The public collection of land rental simply means a charge by the public for a choice location in the midst of the public. The parking meter is a perfect example of this principle. If you want to use a desirable part of a public street, you pay the current value into a public fund. The parking meter principle should apply to all land. The simple mechanism to correct our revenue system would use present methods, equipment, and personnel, arriving by the test of the market at the desirability of all parcels and periodically adjusting appraisal and taxation to absorb the rent offered by the occupants. There is nothing of arbitrary opinion in this, nor would the rent be created by enactment. It would be a straight business matter, and little change would be needed in our laws.

Our failure to discern the difference between PRIVILEGE and SERVICE is stupid enough in its direct impact on our revenue policy, but it also creates a by-product, land speculation, which terribly hinders our progress and security. There is nothing spectacular about the land speculator. Quietly and conservatively he comes into possession of the title deed to a location, an area, for the purpose of (1) using it, (2) charging someone else for its use, or (3) selling his title at an increased price. If he uses it, he retains a public revenue. If he charges others for its use, he collects a public revenue. IN NEITHER CASE IS HIS MONEY USEFULLY INVESTED, and in both he hopes that the third purpose will be served. He hopes that more people will need the land, increasing its rental value.

When he buys it for the third purpose, straight speculation, to sell it later at a higher price, he becomes an obstructionist. He serves no good purpose. He does nothing useful. He is a legalized holdup man. He makes building, living, and working more expensive.

He could say to himself and to the community, "Someone will need this location in the near future; the growing population will make it more and more desirable; so, since the people will not collect what they create here, I will. I will get in this someone's way and prevent him from using this place until he pays me to get out of his way. I will not have to perform any service for him; the people will do that. He will not even get 'value received' from me because as soon as he begins to use the place, the people will fine him with 'taxes' for improving it. They fine anyone who builds a home or brings a business or service to their community. But they will not fine me; they are already letting me usurp a part of their wealth. I levy a tribute on progress. I capitalize other men's energies. The more they fine those who produce or render service, the more unearned value I gain." This is the unconscious soliloquy of the land speculator.

You may question this sweeping and positive singling out of land rents. What about Corporations? Monopolies? Bonds and Stocks? Capital?

Corporations are formed to perform service or to exploit through privilege, or frequently, to combine the two. To the extent that they perform service, they should retain their earnings, however great. To the extent that they exploit through privilege, they should not be supported by the law.

Monopolies, other than land, are simply opportunities for someone to get a little more than he deserves for what he gives, until competition or buyer resistance checks him.

Bonds and stocks are simply evidence of ownership in corporations that may be good and useful or evil and leechlike. Remove privilege, and they will adjust with the change.

Capital is a tool, and the man who creates it should retain what he earns from its use. The difference which sharply and cleanly separates land rental from payment for the use of buildings, tools, stocks in trade -- in short, from capital -- is that land costs nothing in human effort. Everything else is humanly produced. Money invested in the privilege of exacting tribute in the form of land rent is not capital. It is not usefully invested. "Capital is wealth used to create more wealth."

Resentment against big corporations is purely habit or label thinking. Most corporations spend fabulous sums in research seeking new products, processes, and economies, and you buy from them, not because you have to, but because you want their product. You can buy something else or do without. But you DO HAVE to have a little space on earth. That is a monopoly you cannot escape.

It would seem to be beyond dispute that the threat of depression would be remotely distant if the imbalance of our stupid taxation and the stifling barrier to our progress, land speculation, were both removed by recognition of this simple fact: THE RENTAL WHICH USERS WILL PAY FOR LAND IS THE TRUE EARNED PUBLIC INCOME. IT IS A VALUE CREATED BY THE PUBLIC. TAXATION OF INDUSTRY AND THE HOME IS UNJUST, ARBITRARY, AND DESTRUCTIVE. IT SEIZES PRIVATE PROPERTY.

When we learn this and adopt it for ourselves, we will be fitted to lead the world to prosperous peace.

Who is entitled to Ground Rent? The Vicar's Wife, or someone(s) else?

There is an interesting story coming out of Rosses Point, County Sligo, Ireland, that a Church of England vicar and his wife are seeking to be paid ground rent on some land that her great, great grandfather, William Middleton, acquired sometime before 1875.  He owned the entire community, except for the church. Apparently the people who have resided on that land over the intervening years are supposed to have been paying annual ground rent to his heirs, or "buying out" the ground rent.  Either would benefit his heirs with value to which neither he nor they have contributed anything other than what nature provided.  (I think we can reasonably assume that any improvements he made to the land -- fences, drainage, stumping, septic systems, etc -- are long gone after 135 years.)

Most of the Middleton family left Ireland, some as long as 90 years ago.  Apparently no ground rent has been paid in the past 35 years.

According to one of the articles,

In the 1970s, locals traced Middleton family members across the globe, and reached a deal where many bought their ground rent for sums of around IR£100.

But some did not clinch agreement, leaving uncertainty over the ground on which their homes was built, which is in one of the most valuable locations in the north-west.

This raises all sorts of interesting questions about the logic and justice of our laws.  Who has made that land worth anything?  Is it the heirs of William Middleton?  Is it the taxpayers of the community in which the land is located, who presumably have supplied services to these properties?  Is it the people who live in or work in or visit that community?

And then comes the important question.  Putting aside what the law says, who is entitled to that land rent?  Is it the descendants of the 1875 owner?  Is it the current tenants?  Is it the community in which those lots are located?

Which of these is a logical and just way to run a society so that all of us can thrive and prosper?  How should we fund the public goods and services which make a community a good place to live?   Taxing sales within the borders?  Taxing the wages of residents or workers within the border?  Taxing the buildings within the border?  Or collecting some, even all, of the annual rental value of the land for public purposes?

There are properties in midtown Manhattan owned by trusts "granted" by people who have been dead for many decades.  Those who want to use that land pay land rent, year in and year out, to the beneficiaries of those trusts, decade after decade.   Mostly likely that rent escalates over time, as the residents, taxpayers and tourists who use Manhattan contribute their tax dollars and their presence to providing the services which make Manhattan what it is.  So why on earth do we tax wages, sales, hotel rooms, buildings of all kinds, rather than collecting the rent for public purposes?

The Rosses Point heir's husband is quoted as follows:

Mr Chave-Cox said: “You know I am a vicar. Vicars are honest and clear about things. All we want is what’s right and fair and sort things out. Presumably that means people buying up the ground rent.”

I wonder how much they feel they are entitled to receive in 2010.

I seem to remember it being said that "The Earth is the Lord's."   Which Lord?   And what are the implications for ordinary people?

You can read more at

• http://www.independent.ie/national-news/landlords-lay-claim-to-property-at-scenic-spot-2307972.html
• http://clericalwhispers.blogspot.com/2010/08/vicars-wife-defends-her-claim-to.html
• http://revjph.blogspot.com/2010/08/church-of-england-vicar-in-irish-land.html
• http://www.irishdigest.com/?p=10099

Suburban Sprawl and the Decline of Social Capital

t r u t h o u t | Suburban Sprawl and the Decline of Social Capital.

This is an excellent article which I encourage you to read.  I want to share the response which a friend posted to a global listserv we're both on. 

Before I do that, though, I think it is worth considering that the much reported downturn in the market for new housing, as opposed to resale, might relate to a flight to quality.  New subdivisions are on the fringes.  Often they are beyond the fringe, surrounded by farmland -- sometimes described as checkerboard development.   (I've even seen townhouses surrounded by farmland!)

If you have a choice between a new home in a distant subdivision and a resale home in an established location, served by established transportation systems, schools, jobs, shopping, cultural amenities, etc., which will you choose?  Maybe the explanation of why new houses are not selling is that buyers now have a wider choice of homes they can afford, and are choosing the better locations over the newly constructed houses on or beyond the distant edge of the community.

If I'm correct, it bodes well for smaller builders who are doing infill and redevelopment of existing neighborhoods.  Wise policy can promote infill, while unwise policies lead to sprawl.  I suspect the sprawl-folks have a lot more lobbying money than the infill-oriented ones, so can only appeal to good sense.

Here's Ed's response to the sprawl article, which I found to be well reasoned and well stated:

"A colleague of mine forwarded the link of this article to me for comment, as my professional work in the United States has been in community revitalization and the development of quality affordable housing.

What I came to understand midway in my career was that land markets are made dysfunctional by law that favors the landed over those who develop and utilize locations. There are many issues causing sprawling development patterns, but one of the most consistent is the struggle to gain control over land that allows for profitable development. And, of course, developers are not concerned with the infrastructure costs of bringing roadways; water, sewer and other utilities, hospitals, libraries, schools, and other public goods and services to newly-created subdivisions. These costs are passed on to property owners, working people and businesses.

There is only one measure that will redirect development inward, leaving more distant land available for agriculture, recreation and habitat for other species. This is for government to fully collect the annual rental value of every location within its geographical boundaries, while exempting improvement made thereon from the tax/revenue base. What this change in policy will do is easy to see.

• First, profit from speculating in the hoarding of land will disappear. Thus, investors will acquire control over land only when profitable development is possible.

• Second, existing owners of land parcels will not be able to continue to ignore land they hold because the cost of doing so will (particularly if the and parcels are centrally-located) make this costly. They will either develop land based on highest, best use or sell the land to someone who will.

• Third, the cost of property assessment will fall dramatically once property improvements are removed from the tax base.

• Fourth, removing speculation and hoarding of land will bring down the price (but not the annual rental value) of land parcels. This will make it far less costly for public agencies to acquire land for needed public buildings and (if still required given household incomes) to construct decent, affordable housing units for the housing-deprived.

In summary, what will curtail sprawl is public policy that encourages the renovation of existing structures and in-fill construction of new buildings where infrastructure already exists, while at the same time requiring land owners to compensate the community for the value that comes to locations because of public goods and services."

In Weather Chaos, a Case for Global Warming - NYT

In Weather Chaos, a Case for Global Warming - NYTimes.com.

The floods battered New England, then Nashville, then Arkansas, then Oklahoma — and were followed by a deluge in Pakistan that has upended the lives of 20 million people.

The summer’s heat waves baked the eastern United States, parts of Africa and eastern Asia, and above all Russia, which lost millions of acres of wheat and thousands of lives in a drought worse than any other in the historical record.

Seemingly disconnected, these far-flung disasters are reviving the question of whether global warming is causing more weather extremes.

The collective answer of the scientific community can be boiled down to a single word: probably.

“The climate is changing,” said Jay Lawrimore, chief of climate analysis at the National Climatic Data Center in Asheville, N.C. “Extreme events are occurring with greater frequency, and in many cases with greater intensity.”

He described excessive heat, in particular, as “consistent with our understanding of how the climate responds to increasing greenhouse gases.”

Theory suggests that a world warming up because of those gases will feature heavier rainstorms in summer, bigger snowstorms in winter, more intense droughts in at least some places and more record-breaking heat waves. Scientists and government reports say the statistical evidence shows that much of this is starting to happen.  . . .

If the earth were not warming, random variations in the weather should cause about the same number of record-breaking high temperatures and record-breaking low temperatures over a given period. But climatologists have long theorized that in a warming world, the added heat would cause more record highs and fewer record lows.

The statistics suggest that is exactly what is happening. In the United States these days, about two record highs are being set for every record low, telltale evidence that amid all the random variation of weather, the trend is toward a warmer climate.

Recall that the US uses a disproportionate percentage of the world's oil and coal, and produces a disproportionate percentage of the world's greenhouse gases.

As poor people around the world -- and not-so-poor people, too -- contemplate America's place in the world, particularly when they are suffering from the effects of extremes of weather, are they likely to be willing to accept the notion that America is somehow special, and that it is the rest of the world that must adjust to us, or will they come to hold us accountable to the rest of the world's people?

When we wrap our minds around the implications of that question, we will come to the question of how we can reduce the demand for the kinds of energy which pollute the world's air.

Part of the answer will come from reducing, even reversing, urban sprawl, and setting our incentives so that our cities get re-developed more quickly and more effectively.  This will also be good for the economy, creating jobs in the ongoing redevelopment process and then again in the new buildings created by this redevelopment. 

What incentives?  Start with the incentives which promote intense use of land well-served by taxpayer-provided infrastructure (highway systems, rail and subway systems, bridges, tunnels, air travel, etc.; water, sanitary sewer, stormwater management, etc.); and services (schools, police, ambulance, firefighting, street-cleaning, trash removal, recycling, public health, courts and prisons; public parking, etc.)  Every one of those services serves to increase the value of land within the area served.  Most of them contribute more to the land value than they cost.   Yet we continue to fund them, in many places, with taxes not on land value but on wages or sales -- stupid taxes, to be blunt about it!  

We can settle down and study the problem, or we can continue to do what hasn't worked yet.  But not for long, and not for free.  Our neighbors in the other 94% of the world are going to start holding us accountable at some point.  Do we want to wait until it hits us, or do we want to get out in front of it?

And if we could, via a simple reform in the US, set an example that would contribute to prosperity in other countries, wouldn't we be wise to pursue it?

Greater Fools

The dangers of financial illiteracy in America : The New Yorker.

This is a good article, by James Surowieki, on the prevalence of financial ignorance in America.   I'm going to take the liberty of including the entire article here, but want to preface it with the thought that the problem is deeper and broader than he suggests.  Remember that Case and Shiller (2003, if I recall correctly) found that people buying homes expected them to appreciate significantly; this expectation likely caused them to take on amounts of debt that in the absence of such an expectation would have made absolutely no sense.

How many people realize that houses depreciate?  Houses depreciate. (A May, 2006, Federal Reserve Board study cited 1.5% as an annual depreciation for single-family housing stock.)  What rises in value is land.  It rises in value for reasons which have nothing at all to do with the activity or inactivity, presence or absence of any individual landholder.  It rises because of increased in population (general and local); because of public investment in infrastructure and services which appeal to buyers and tenants (residential and commercial); because of advances in technology (e.g., elevators, air conditioning, even fiberglass boats!).  It is also influenced by interest rates and by loan underwriting rules, and by pent-up demand for a place to live, and a willingness to commit a huge portion of one's savings (if any) and present and future income to paying a seller for value he didn't create, on the basis that this is a better choice than paying a landlord for value he didn't create.

(The alternative, of course, is to reform our taxes, and place more of the burden onto the value of land, not a square foot of which will disappear or be hidden, and less on buildings, wages, purchases and other standardly-used tax bases which behave badly when taxed.  But our financial ignorance goes far beyond ignorance of personal finance.   Very few of us have a realistic understanding of political economy, the science which deals with the natural laws governing the production and distribution of wealth and services.  Very hard to make sense of the micro if you have an unrealistic or limited understanding of the macro!)

Individuals buying their first homes hoped to supplement their meager wages with significant unearned increases in land value.  But they failed to note what Leona Helmsley laid out: it is the little people who pay the taxes, and the little people who support the public spending which enriches those who hold our best-located land (be they individuals or corporations, domestic or otherwise).   Details, details. 

Here's the article:

GREATER FOOLS

by James Surowiecki July 5, 2010

Halfway through his Presidency, George W. Bush called on the country to build “an ownership society.” He trumpeted the soaring rate of U.S. homeownership, and extolled the virtues of giving individuals more control over their own financial lives. It was a comforting vision, but, as we now know, behind it was a bleak reality—bad subprime loans, mountains of credit-card debt, and shrinking pensions—reflecting a simple fact: when it comes to financial matters, many Americans have been left without a clue.

The depth of our financial ignorance is startling. In recent years, Annamaria Lusardi, an economist at Dartmouth and the head of the Financial Literacy Center, has conducted extensive studies of what Americans know about finance. It’s depressing work. Almost half of those surveyed couldn’t answer two questions about inflation and interest rates correctly, and slightly more sophisticated topics baffle a majority of people. Many people don’t know the terms of their mortgage or the interest rate they’re paying. And, at a time when we’re borrowing more than ever, most Americans can’t explain what compound interest is.

Financial illiteracy isn’t new, but the consequences have become more severe, because people now have to take so much responsibility for their financial lives. Pensions have been replaced with 401(k)s; many workers have to buy their own health insurance; and so on. The financial marketplace, meanwhile, has become a dizzying emporium of choice and easy credit. The decisions are more numerous and complex than ever before. As Lusardi puts it, “It’s like we’ve opened a faucet, and told people they can draw as much water as they want, and it’s up to them to decide when they’ve had enough. But we haven’t given people the tools to decide how much is too much.”

Unsurprisingly, the less people know, the more they run into trouble. Gary Rivlin’s blistering new examination of the subprime economy, “Broke, U.S.A.,” is full of stories of financially ignorant people bamboozled into making bad decisions — refinancing out of low-interest mortgages, say, or buying overpriced credit insurance — by a consumer finance industry adept at creating confusing products. Such stories are backed up by the numbers. A study by economists at the Atlanta Fed found that thirty per cent of people in the lowest quartile of financial literacy thought they had a fixed-rate mortgage when in fact they had an adjustable-rate one. A study of subprime borrowers in the Northeast found that, of the people who scored in the bottom quartile on a very basic test of calculation skills, a full twenty per cent had been foreclosed on, compared with just five per cent of those in the top quartile.

What can be done? One solution is regulation: the financial-reform bill now before Congress will create a consumer financial-protection agency that should help curb the finance industry’s most predatory excesses. Another solution is to tinker with “choice architecture” — doing things like enrolling people in 401(k)s automatically — in order to “nudge” them toward better decisions. Both of these strategies are necessary, but they’re not enough on their own, because financially illiterate consumers are always going to be easy victims. We also urgently need proper financial education.

This seems obvious, but it’s surprisingly controversial. Some suggest that financial illiteracy is an example of what economists call “rational ignorance” — inattention that is justified because the costs of paying attention outweigh the benefits. But few decisions affect us more directly than the ones we make about our money. Critics also argue that financial education may make people overconfident, and therefore more likely to make bad decisions. In fact, the reverse is true: the less people know, the more overconfident in their abilities they tend to be. In a German study, eighty per cent of those surveyed described themselves as confident in their answers on a questionnaire, yet only forty-two per cent got even half the questions right. This is known as the Dunning-Kruger effect: people who don’t know much tend not to recognize their ignorance, and so fail to seek better information. No wonder, then, that the least knowledgeable people in the Atlanta Fed study were also the least likely to do research before getting a mortgage. By contrast, well-informed people are more likely to ask others for help. If financial education taught people only how little they actually know, it would accomplish quite a lot.

The government’s new consumer-protection agency has the authority to “review and streamline” financial literacy programs, but that’s not enough. We really need something more like a financial equivalent of drivers’ ed. There’s evidence that just improving basic calculation skills and inculcating a few key concepts could make a significant difference. One study of the few states that have mandated financial education in schools found that it had a surprisingly large impact on savings rates. And the Center for American Progress has found that, across the country, education and counselling by nonprofit organizations, like the Massachusetts Affordable Housing Alliance, have helped low-income families buy and hold onto homes, even during the housing bubble. The point isn’t to turn the average American into Warren Buffett but to help people avoid disasters and day-to-day choices that eat away at their bank accounts. The difference between knowing a little about your finances and knowing nothing can amount to hundreds of thousands of dollars over a lifetime. And, as the past ten years have shown us, the cost to society can be far greater than that. ♦

 

Aging in Place

On one of the NYT blogs in the "New Old Age" series, someone ("been there" in Boston)  posted a very wise comment I thought worth passing along.  The original post was entitled "No Place Like Home."

Think about it with respect to public policy such as California's Proposition 13. 

I've added a bit of formatting to make it easier to read.

I understand the current sentiment for "growing old in place", but I really believe we need to rethink the idea of spending limited resources trying to keep elderly people living in the homes they raised their families in. This feel-good concept actually has several drawbacks in a variety of areas. As larger numbers of baby boomers move into retirement these issues will only get worse.

• First, with one or two elders living in a three or four bedroom home, young growing families have too few move-up houses available to them so they build new houses in the exurban ring which 30 years down the road will exacerbate the real estate pull back as the boomer generation passes and the baby bust can't replace their numbers.
• Second, as this article points out, access to services and health care is terribly expensive and inefficient when those needing a high level of health care are in single family homes.
• Third, the stress of owning a home that an elder cannot adequately repair or maintain becomes a constant low level of stress in their lives.
• Fourth, all too often, the elderly are stuck in a financial situation where the ongoing costs of their primary home are wrecking their budget. Reverse mortgages with their high fees and lousy financial terms are a terrible solution. We need to develop a wider array of 55+ housing solutions at a wider selection of price points and housing styles in the communities where elders live so they can maintain the relationships that nurture them while providing housing situations that allow them access to all the services they will need.

I couldn't have said it better!   Policies which significantly favor older homeowners over their younger fellow community members (e.g., California's Proposition 13 or Florida's Save Our Homes) drive up housing prices, monthly housing expenses, commuting expenses, pollution, sprawl, commuting time, profits for mortgage lenders.  They lead to the premature need for adding infrastructure, destroying farmland, spending public money to enrich private entity landholders.

If our incentives instead encouraged the prompt and ongoing redevelopment of choice sites, well-served by taxpayer-funded infrastructure and services, there would be affordable, appealing housing for people of all ages and stages, all places on the income spectrum.  It wouldn't be single-family houses downtown; it might be midrises or highrises, close to all the amenities which make downtown areas good places to live: medical care, restaurants, entertainment, libraries, emergency services, etc.  

We just need to rationalize -- make rational! -- our system of incentives and privileges.   We ought to align our incentives with where we want to go, and with what eliminates privilege for some which are funded by burdens on others.  (Some of our privileges are so things we're so used to that we don't see that they burden and victimize others.  Private collection of land rent and natural resource value is in that category.)

The Larger Struggle - David Brooks

Op-Ed Columnist - The Larger Struggle - NYTimes.com.

On the one side are those who believe in democratic capitalism — ranging from the United States to Denmark to Japan. People in this camp generally believe that businesses are there to create wealth and raise living standards while governments are there to regulate when necessary and enforce a level playing field. Both government officials like President Obama and the private sector workers like the BP executives fall neatly into this camp.

On the other side are those that reject democratic capitalism, believing it leads to chaos, bubbles, exploitations and crashes. Instead, they embrace state capitalism. People in this camp run Russia, China, Saudi Arabia, Iran, Venezuela and many other countries.

Many scholars have begun to analyze state capitalism. One of the clearest and most comprehensive treatments is “The End of the Free Market” by Ian Bremmer.

Bremmer points out that under state capitalism, authoritarian governments use markets “to create wealth that can be directed as political officials see fit.” The ultimate motive, he continues, “is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival).” Under state capitalism, market enterprises exist to earn money to finance the ruling class.

The contrast is clearest in the energy sector. In the democratic capitalist world we have oil companies, like Exxon Mobil, BP and Royal Dutch Shell, that make money for shareholders.

In the state capitalist world there are government-run enterprises like Gazprom, Petrobras, Saudi Aramco, Petronas, Petróleos de Venezuela, China National Petroleum Corporation and the National Iranian Oil Company. These companies create wealth for the political cliques, and they, in turn, have the power of the state behind them.

It might be worth looking at these assertions in light of how wealth is distributed ... concentrated might be a better description ... in America.  The 2007 Survey of Consumer Finances, from the Federal Reserve Board, reports the following distribution of "Equity," which includes individual stocks and equity mutual funds, whether held in retirement or non-retirement accounts:

Bottom 50%      1.5%
Next 40%        19.6%
Next 5%          12.4%
Next 4%          30.5%
Top 1%           36.0%

The SCF also reports the distribution of holdings of "BUS" -- the value of privately-held businesses:

Bottom 50%      0.4%
Next 40%          6.0%
Next 5%            5.5%
Next 4%          25.5%
Top 1%           62.7%

The two categories are of roughly equal size: Equity $13.7 trillion and BUS $14.9 trillion.   So one might reasonably estimate that the top 1% have roughly 50% of the aggregate value of these two categories, and the next 4% have about 28% -- leaving 22% for the bottom 95% of us.

If state capitalism puts, say, 80% of business in the hands of the top 5%, is it that much worse than what we've got?  In some ways, yes -- but the question is worth pondering.

Brooks closes with this:

We in the democratic world have no right to be sanguine. State capitalism taps into deep nationalist passions and offers psychic security for people who detest the hurly-burly of modern capitalism. So I hope that as they squabble, Obama and BP keep at least one eye on the larger picture.

We need healthy private energy companies. We also need to gradually move away from oil and gas — the products that have financed the rise of aggressive state capitalism.

More than "needing healthy private energy companies" we need to start collecting for the commons more of the value of the natural resources they draw from our common supply -- not to mention forcing them to privatize the environmental risks associated with drilling.  Remember what Henry George said about a well provisioned ship?  He who controls the hatches controls his fellow human beings.

And of course, we need to be undertaking the shift of incentives which will redirect sprawl into the underused sites in our cities.  Land value taxation -- untaxing buildings, and uptaxing land value -- will produce the urban density which will lead to walkable cities and populations which will support effective public transportation systems.  It will provide technologically modern housing affordable to people at all levels of the income spectrum, close to their work -- for those who want that.  The reduced pressure on the suburban markets will lower prices there, too, for those who want that.   That urban redevelopment will also create more commercial venues in the centrally located places where specialized businesses thrive.  And of course all that building activity creates jobs, and those new technologies will produce buildings which use less energy and produce less pollution.  And because untaxing buildings removes the penalties associated with things like solar power, all the incentives will be pointing in the same direction.

t

New plan to make millions in profits without any investment - PakTribune

New plan to make millions in profits without any investment

A standing google alert on the "Roosevelt Hotel" in NYC brought me this article on another way for the foreign owner of this excellent acre in Manhattan to make money without selling the site.  It suggests that this method might be quite profitable for a number of individuals in that country's government. 

The back story, as I've gleaned it, is contained in some earlier posts to this blog.

The article slightly mis-states the situation.  It is not the Roosevelt Hotel which is worth $300 to $400 million; rather, it is the ground under the hotel, which is a well-located full-block, roughly an acre, in midtown Manhattan.  Estimates of its value a few years ago, as a tear-down, ranged from $400 million to $1.2 billion.  When the real estate market went soft, it was clear that waiting a few years for it to revive would be quite profitable.

This article, though, suggests that a lot of individual politicians stand to make individual profits through a different strategy.

Remember what Leona Helmsley told us:  "WE don't pay taxes.  The little people pay taxes."    The little people's taxes provide the services which make this acre worth $400 million.

What an Estate Looks Like to the Taxman

What an Estate Looks Like to the Taxman - NYTimes.com.

But where does that dynastic plutocracy begin? There is an astronomical gap between Mr. Buffett’s fortune, which Forbes estimated at $47 billion, and two retirees in Marin County, California, whose life’s work might have allowed them to leave their heirs $3.5 million in assets, mostly in the value of a house.

Oh, I was so pleased to read someone expressing it so clearly.  Tell me about that house in Marin County.  Let's see.  Let's say our retirees bought it in, say, 1980, for, say $200,000.  They probably put down 10% or 20% in those days (borrowing standards were a little different then).   Let's say that they had a mortgage for, say $160,000, at 8%.  They finished paying it off last year.  The monthly mortgage payment was $1,174. Over the course of 30 years, they paid off $160,000 of principle, and paid the lender about $266,000 in interest.  To rise from the $200,000 purchase price to today's value of $2 million, the average annual appreciation was about 8.3%.  Obviously, some years it was more, some less.  But 8.3% is an average.

What the paragraph quoted doesn't explain is how our hard-working retirees caused their property to appreciate by 8.3% per year over 30 years. 

The reality is that houses depreciate.  What rises in value is the land, and it rises for reasons which have nothing to do with the individual landholders, or even all the landholders in aggregate.  Land appreciates as a result of the presence and growth of population and a healthy economy; as a result of the public provision of goods and services which people value and which make a community or state a better place to live.  Advances in technology can also contribute to increases in land value -- consider elevators in cities, air conditioning in the American south, fiberglass boats in waterfront communities.

Our retirees experienced an 8.0% average annual growth in the value of their residence.  Paying off their mortgage raised their equity by the $160,000 they originally borrowed. Appreciation, provided by their community and their nation, provided $1,800,000 -- over 10 times as much!   Their hard work paid the mortgage, but their community contributed FAR more.

But, you might argue, they did pay property taxes all those years.  Yes.  Under Proposition 13, their property tax is based on 1% of the assessed value of the property, and the assessed value of the property can only rise by 2% per year, no matter how much the market value has risen.  Voters can approve additional payments in the form of parcel taxes, which might bring taxes up to perhaps 1.25% of the assessed value of the property. 

At 1.25%, over those 30 years, our hardworking Marin retirees have paid in $109,514 in property taxes.   The rest of their "hard-earned"  appreciation comes from

• the scarcity of housing close to California's cities, compared to the number of people who would like to live close in;
• spending supported by taxes on sales and wages -- which come not only from their own pockets but from the pockets of the 50% of California residents who are renters because they can't afford to buy;
• federal dollars spent on California infrastructure
• effects created by changes in mortgage interest rates and mortgage lending policies, including loan-to-value ratios, underwriting standards related to income ratios, etc.

Does it seem churlish to collect back a portion of the value we-the-people have created once per generation?  We'd be much wiser to collect it year-in and year-out, in the form of a tax on the value of the land itself, and let our workers keep their wages and not pay taxes on their purchases or homes.

Does it seem churlish that the Marin retirees' children should not be entitled to keep all that value we-the-people created just as if the retirees had created it themselves?  After all, other people's children, including those of tenants, don't get to keep that value, but they've contributed to creating it.

A 15% capital gains tax on the $1,800,000 somehow seems an insufficient share for the commons.  Even a 50% estate tax seems a bit insufficient, too.

This is trickle-up economics at work, and saying that some of it trickles to people we might consider middle class doesn't change the fact that some grow wealthy in their sleep, while others simply grow poor despite working hard for decades.   The two situations are not unrelated.   (And a $3.5 million estate doesn't fall into most definitions of middle class in America.)

Paying for Transportation Infrastructure is simple

A friend passed along this excellent piece, from the City Club of New York just over 100 years ago.  It is long, but highly instructive, and quite relevant in the 21st century.  

Do you want to know the mechanisms by which we concentrate wealth into the portfolios of a narrow slice of our population?  Read this.  Read Fred Harrison's Wheels of Fortune. Watch Fred's brief video, Ricardo's Law: The Great Tax Clawback Scam:

And consider a town or city you know.  Is your experience any different?

Why on earth would we finance infrastructure any other way?  Well, California's Proposition 13 is designed to make sure California can't.  No wonder the state is in such trouble.

Remember what Leona Helmsley told us: "WE don't pay taxes.  The little people pay taxes."  She wasn't talking about tax evasion; she was describing tax structure. THIS is how wealth concentrates.

The reference to Spuyten Duyvil is to the point where today the Henry Hudson Bridge, on the parkway of the same name, crosses from upper Manhattan into Riverdale, in The Bronx. (It refers to devilish currents in the rivers, which menace unsuspecting rowers.)

Building of Rapid Transit Lines In New York City By Assessment Upon Property Benefited

A Memorandum Addressed to the Board of Estimate and Apportionment
And The Public Service Commission of New York City.

The City Club of New York
55 West 44th Street
October 2, 1908

The Board of Estimate and Apportionment and the Public Service Commission:

Dear Sirs:

The City Club respectfully submits for your consideration the results of inquiries made through its Transit Bureau with relation to the feasibility of meeting the cost of future subway extensions by means of assessments on the property benefited.
 
The city urgently needs more rapid transit roads. Private capital seems disinclined, at present at least, to finance the work of building. The city's borrowing power is utterly inadequate to cover the need, and will be until relief may be secured through the slow process of constitutional amendment. If the necessary lines are to be built, it seems self-evident that other methods must be considered.

The Club's investigations show that in the outlying districts reached by the present subway, and to some degree the nearer sections, the value of the property served has increased to an extraordinary degree. This added value would have paid for the cost of the work several times over. While the city as a whole has benefited greatly, the scale of local benefit is naturally much greater. In our judgment, it would not only be helpful as a solution of the problem, but far more equitable to charge a proportion of the cost of constructing a rapid transit line to the property most benefited by such construction.

The argument is elaborated, and the exact results of the Club's investigation given, in the accompanying memorandum. We trust that this may have your examination, and that if the plan commends itself to your judgment, the future policy of the city may be shaped accordingly.

Very respectfully yours,
Homer Folks, Chairman, Transit Committee.

Henry C. Wright, Bureau Director.

BUILDING OF RAPID TRANSIT LINES IN NEW YORK CITY
BY ASSESSMENT UPON PROPERTY BENEFITED

For many years the city has deemed it just to assess upon abutting property the cost of opening streets and building sewers. The theory of such a tax upon property is that it receives almost the exclusive benefit from the construction of a street or sewer adjacent to it. The question naturally arises, does not a transit line, by the benefit that it confers, fall in the same class as new streets and sewers? If a street railroad or rapid transit line be extended into an undeveloped territory, is it not built primarily for the purpose of furnishing  transit facilities to future residents in that section? People will buy this property primarily because it has good transit facilities and the value placed upon it is largely based upon its accessibility. This being true and universally admitted, why should not the property thus enhanced in value by the extension to it of a transit line pay for the construction of such line, to the extent that the increased value warrants it, instead of receiving such increased value as a present from the city. This principle, in a modified and unofficial form, is operated in Berlin. The assessment is not collected by the city, but the street car company when extending a line to outlying territory requires the owners of the property benefited to guarantee to the company a certain return upon the cost of such extension.

What's the real cost of living, in Pennsylvania?

Pennsylvania is a diverse state.  Its major cities and their suburbs tend to have higher costs of living, and its smaller cities and rural counties are much less expensive.  But even the least expensive counties have bare-bones cost of living far about the Federal Poverty Guideline.

Here are the Federal Poverty Guidelines for 2009, which were extended into at least mid-2010:

• 1-person family:   $10,830
• 2-person family:   $14,570
• 3-person family:   $18,310
• 4-person family:   $22,050
• larger families: add $3,740 per person

This week, the newest Self-Sufficiency Standard Study was published, for Pennsylvania.  I've collected the SSS data for some selected counties, and added some data from the Census Quick Facts site (county population, median family income 2008, and persons per square mile).  A few observations:

• The barebones cost of living in the least expensive counties is over 150% of the FPG for a single adult; and nearly twice the FPG for adults with children.
• A similar lifestyle would cost far more in Pittsburgh (about 250%, with children) and Philadelphia (about 300%, with children.  In suburban Pittsburgh, the figure is slightly higher than in the city itself.  In Lancaster County, the costs are similar to suburban Pittsburgh's.
• And in the suburban counties of Philadelphia, that still-bare-bones lifestyle costs more yet: 325% to 350% of the Federal Poverty Guideline.
• Few people live in the rural counties, where costs are low. (So are wages and opportunities!)
• Most people live in the urban and suburban counties, where costs are higher.  (And if they tried to live in the rural counties and work in the urban ones, their high transportation costs would eat up much of the difference.)
• High population density goes with high median income; low population density goes with low median income.

All these places need janitors, and nurses' aides, and fast-food workers, and retail clerks, and many other jobs which pay wages which are insufficient for an adult to live independently on, much less support a family on.  (And most places have zoning regulations which prohibit more than a few unrelated adults from living in a single housing unit, which would be a way to reduce the cost of living.)   Encouraging individuals to seek more education to move beyond these jobs is fine, but it doesn't mean that those jobs won't be needed in a hypothetical more-educated future.   Do we really expect that they will be filled by people who will be content with dormitory living, and not having children, or supporting an elderly relative, or that young people will fill these jobs briefly and then move into higher-paying jobs when they marry and have children?  Really?

Trickle-down economics doesn't speak to how all these people can afford to live.   The SSS is not a middle-class lifestyle, at least not the way most of us think of "middle class."  It is the just-getting-by-without-depending-on-help (though it does take into account EITC, CCTC and CTC; the EITC is only relevant in a few rural counties -- see the tables starting at page 42).  We need to understand why wages are so low, and why our wealth and income are so concentrated.  And we need to understand the structures that create this situation, in order to correct them.

Area	Population	Median Family Income	Persons per Square Mile	1 Adult	1 Adult, 1 Preschooler	1 Adult, 1 Preschooler, 1 Schoolage	2 Adults, 1 Preschooler, 1 Schoolage
Federal Poverty Guideline	source: Census Quick Facts site, except for Allegheny County: Pittsburgh city data			$10,830	$14,570	$18,310	$22,050
Erie County	280,291	$44,005	350	$17,344	$35,928	$46,676	$53,077
% of FPG				160%	247%	255%	241%
Allegheny County: Pittsburgh	312,819	$56,300 source: SSS	6,019	$17,431	$36,412	$47,857	52,009
% of FPG				161%	250%	261%	236%
Allegheny County: excluding Pittsburgh	total county: 1,218,494	$48,778 source: 2008 ACS	1,756	$20,013	$38,957	$50,226	$56,865
% of FPG				185%	267%	274%	258%
Philadelphia	1,547,297	$37,090	11,461	$21,392	$41,863	$54,705	$59,501
% of FPG				198%	287%	299%	270%
Bucks County	626,015	$75,701	985	$27,886	$51,253	63,821	71,846
% of FPG				257%	352%	349%	326%
Chester County	498,894	$85,547	573	$28,160	$51,853	$63,639	71,296
% of FPG				260%	356%	348%	323%
Lancaster County	507,766	$55,824	496	$19,223	$37,612	$48,400	$54,821
% of FPG				177%	258%	264%	249%
Bedford County	49,579	$39,754	49	$17,221	27,916	35,445	43,756
% of FPG				159%	192%	194%	198%
Juniata County	23,118	$42,705	58	$16,545	$27,412	$34,985	$42,355
% of FPG				153%	188%	191%	192%
Total	12,604,767	$50,702	274

So how do we reduce our reliance on oil?

I've not heard any really good answers to this question yet.  Which is not to say that I don't think there are answers; they just aren't being widely discussed yet.

The answer lies deeper than the analyses which are commonly discussed.  We need to shift our incentive system at a deeper level than what is currently being discussed.  

We spend a lot of money heating and cooling older homes many miles from where people actually work.  People commute long distances -- most of them via private cars because there aren't viable alternatives.  Why do they live so far from their work?  Usually because they can't afford to live closer.

The selling price of most housing within a commutable distance of any vibrant city is mostly land value.  And most people don't know it. 

Let me say that again.

The selling price of most housing within a commutable distance of any vibrant city is mostly land value.  And most people don't know it.

And they don't know why this is so, or realize that there is an alternative which would be desirable from virtually every point of view, or realize the far-ranging ramifications of this reality.  And this is as true of people who hold graduate degrees in economics from our best universities as it is of people whose formal education ended with high school. 

And the fact that the selling price of a home in a metropolitan area is mostly land value -- not value associated with the current structure -- seems to be invisible to most of us.  As are the ramifications of the fact that houses -- like nearly everything else which is manmade -- depreciate!   What appreciates is land value -- locational value -- and it appreciates for reasons which have nothing to do with the landholder himself.

The ramifications?  I'll list a few here, but the list is very long.

• As population grows and more jobs are in cities, population density in the city itself and the closest surrounding suburban rings needs to increase.  What might once have served as large-lot single-family housing ought to give way to multi-family housing -- townhouses, low-rises, mid-rises.  Vacant lots ought not to remain vacant for long.  Low-rise commercial ought to give way to mid-rise commercial, or high-rise mixed use, with retail on the street level and housing or offices above.
• More people living in walkable communities, with public transportation to move them to their work, reduces our reliance on cars.
• More people living in technologically modern housing reduces the per-person fuel to heat and cool their living spaces.
• Incentives which discourage redevelopment of underused sites are counterproductive
• Incentives with encourage the prompt redevelopment of well-located sites to their highest and best use will reduce our reliance on oil and other non-renewable natural resources as well as the pollution associated with those fuels. 
• When we tax land value, we don't take from anyone value which they created.
• When we tax land value, we reduce our reliance on income taxes and sales taxes.
• When we tax land value, we can reduce our taxation of buildings and other improvements, which reduces the disincentives to redevelopment, to using modern techologies -- both of which create jobs. 
• When we tax land value, we reduce the selling price of housing, making it more affordable to ordinary people, and requiring them to borrow less.  This frees up credit for activity which creates jobs. 
• When we tax land value, we stabilize our economy, reducing or eliminating the boom-bust cycles which afflict us roughly every 18 years.

That's enough for starters.