LVTFan's Blog

We've made a secular religion of homeownership

I heard this phrase from a guest on Diane Rehm's NPR program today.  And I think it is essentially a correct statement, and reflects our lack of understanding of the underlying dynamics.

We see that homeowners fare better than renters, and think that the answer to wealth distribution might be to make more renters into homeowners as a way to help them fare better.

But as a society, we could do a lot better if we all -- owners and tenants alike -- shared in the appreciation of land value, which currently accrues only to owners.  If you've never thought about it before, this will sound very odd to you.  But consider that
(1) houses, like cars and machinery, do not appreciate.  They depreciate.
(2) land appreciates, for reasons which have nothing to do with the individual landholder.  It appreciates because of public spending on infrastructure and services (schools, libraries, roads, highways, bridges, public health, emergency response at both the individual and community level, police, courts, jails, prisons, social workers, food stamps,  It appreciates because of natural amenities like great views.  It appreciates because of the presence of a healthy local and/or national economy.  It appreciates because of increases in population, whether from increased fertility, decreased mortality because of better health care or fewer accidents or disabilities, immigration or migration. It appreciates because of advances in technology -- faster trains, air conditioning, elevators, earthmoving equipment advances, subways, bridge design.

Why on earth should landholders -- residential or, far more significantly, commercial -- be the beneficiaries of this appreciation?  Why shouldn't we treat this value as our common treasure, since we're all equally responsible for it?  Shouldn't we use this as our natural revenue base, to benefit all of us -- those who consider ourselves owners, those who are residential tenants, and those whose work is on land owned by others? 

The way we do it now, tenants get nothing (and get to pay for some of that public spending, which raises next year's rent to their landlord), residential owners do pretty well, and commercial property owners, who own our best-served-by-valuable-infrastructure downtown sites (like that block in Manhattan) make out magnificently.  That "magnificent" doesn't come out of thin air. It comes from the labor of all of us, often at wages well below what they should be.

Pulitzer Prize Winner Stresses Ethical Taxation

Pulitzer Prize Winner Stresses Ethical Taxation. Pulitzer Prize Winner Stresses Ethical Taxation September 29th, 2008 · Events · Posted by Behnaz Abolmaali

The fundamental starting point for democratic government began with taxation, said David Cay Johnston, a Pulitzer Prize-winning author and former New York Times investigative journalist, during a speech to McCombs accounting students Sept. 24.

Johnston, who came to UT as part of the Lyceum Speaker Series, told students that the ideas about taxation and society that have prevailed since Ronald Reagan’s time favor a system in which money is systematically funneled from the poor to benefit the rich.

“People who think that taxes are a cost will do virtually anything to eliminate that cost,” Johnson said. “Taxes are not a cost. Taxes are a moral obligation.”

The ancient Athenians, he said, developed democracy by instilling a guiding moral principle in tax laws: that the greater the wealth one has built up, the greater their moral obligation to helping society continue.

As readers of this blog know, I am a great admirer of David Cay Johnston.  I generally think he is on the right track, and/but (shifting metaphors and transportation systems) think he has some blinders on.

In the quote in the preceding paragraph, I think he is bringing up a vitally important matter, but he hasn't followed it to its logical root, and is thereby missing perhaps the most vital aspect of the subject.

Those Shareholders who are being wiped out ... who are they? - or, "How's it trickling?"

Some will try to tell you that stock ownership in America is very broad, and that the middle class is going to be suffering -- as shareholders -- if we don't bail out ... whoever.  The oil companies, the banks, etc.

They are telling the truth, sort of.  Not the whole truth, of course, but the sort of truth that leads you to the conclusions they need for you to reach.  The sort of truth, too, that most of us would like to believe is true.

Much depends on how we define the "middle class."  I'm going to pick a definition that I don't think is ideal, but for which the data is readily available.  It comes out of the Survey of Consumer Finances, as reported in a Federal Reserve Board Study called Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004.  I'm going to define the middle class here as the 40% of us whose net worth places us above the median in net worth, but below the top 10% of the wealth spectrum.   By that measure, half of us are below middle class, and 10% of us above it. Here is how aggregate net worth is divided among the three groups:

Finishing the Bridge Construction Ahead of Schedule ...

Creates rent! Benefits the community!  Reduces fuel usage!  Reduces drivers' frustration!  Speeds traffic!  Reduces congestion! Shortens commutes!  Promotes commerce! 

It is clearly worth setting up incentives for contractors to finish work such as the replacement bridge in Minneapolis ahead of schedule.

LA Times: Can California survive 'no new taxes'?

The LA Times ran an article entitled Can California survive 'no new taxes'?, and I thought it merited a comment.  However, it turns out that they only accept comments of 650 CHARACTERS or less.  Here's what I tried to post...

Being born into the Landed Gentry is like holding the winning lottery ticket

The Ianded gentry ...  sounds so noble ... so gentle ...  so aristocratic .... so entitled!

What is it about? 

David Cay Johnston: Income Data and the Future of the Nation

link: 120TN0887.pdf

A few lifts:

• While median income rose year-over-year in 2007, it was still smaller than way back in 1999 by $408 or nearly 1 percent. Eight years and no gain is not good news. My analysis of the latest reports from the IRS Statistics of Income Division showed that in 2006, taxpayers reported higher average income for the first time since 2000. But the gain was just $740, from $57,289 in 2000 to $58,029 in 2006.
• Looking deeper, the data show that the gains are almost all at the top. Among people making less than $75,000 — roughly 8 of every 10 taxpayers — 2006 average incomes remained below those of 2000 levels. And of the gains of the top fifth, an astonishing 42 percent went to the 1 in 400 taxpayers who reported seven figures or more of adjusted gross income on their Form 1040.
• The dominant and often only form of income for most Americans is slowly eroding, while the capital incomes earned by those at the top are soaring.
• And while it is true that the top 10 percent pay the lion’s share of income taxes, this levy explains only about a sixth of the dollars that governments at all levels collect.   When you look at all federal taxes that fall directly on individuals, the data show that schoolteachers, cops, and office workers pay marginal tax rates of more than 40 percent on wages that have been mostly stagnant over the past three decades. But at the very top, where the marginal tax rate is just 15 percent, incomes soar.
• We need policies that focus on wages if we want broad prosperity. We need to look at the world the way employers do, who see the payroll tax as a good reason to shed workers and hire people on contract and, when they can, shift jobs overseas.

"Capital incomes."   Hmm.  Capital tends to depreciate.  What appreciates is what the classical economists classified as LAND.  Neo-classical economists have managed to tuck land into capital as a subset, and thus appear to justify a lot of things which simply have no justification.  Oil revenues are somehow treated as if corporations had created that oil.  (The governor of Alaska declared recently that that resource rightly belonged to all Alaskans, and raised the tax rate a bit.)

The classical economists saw three non-overlapping factors of production: land, labor and capital. The returns to each are rent, wages and interest.  If those who would open a business need a bit of land on which to operate, and that bit must be very choice in order for their business to succeed, they must pay a very high rent to the current owner of that site, leaving them less for employing workers and buying the things which will make that business a success and which, by the way, will enhance the economy.  The land rent can go either of two places.  As we conduct things now, a tiny share of it goes to the commons, as part of the local property tax; the remainder is permitted to collect in private pockets, lining those pockets more each year.  As we should do things, the lion's share of that land rent should be collected by the commons, and used to fund our common spending -- leaving wages untaxed, sales untouched, buildings unpenalized.  We can

(1) recycle the land rent, over and over and over, for public purposes, or we can

(2) gift it to the landholders, and tax our wages and our sales and our buildings in order to get the revenue we need to help make rent higher next year. 

Which of these options seems wise?  Which seems sustainable? Which seems just?  Which seems efficient?  Which seems administrable? 

Downtown Nantucket: Who Should Get the Rent?

The Billionaire and the Bookstore - The Boston Globe

Wendy Schmidt, wife of Google CEO Eric Schmidt, is spending a fortune to preserve Nantucket's small-town character. But is the island helped -- or hurt -- by having its very own sugar mama

It seems that, in order to keep a fully functioning downtown in the town of Nantucket on the island of Nantucket, one of the seasonal residents has bought up some land (and buildings) downtown and is offering them, at token rents, to successful local merchants whose businesses meet the needs of year-round residents of this high-end resort island.

David Cay Johnston: Can You Hear Opportunity Knocking?

Link: http://taxprof.typepad.com/taxprof_blog/files/120TN0683.pdf
David Cay Johnston, the peerless reporter and commentator on US income tax policy, formerly with the NYTimes, and the author of two excellent books (Perfectly Legal and Free Lunch), now a columnist for Tax Notes, has written a column on the incentives involved in the income tax deduction for interest.

Though I think he sees through a glass darkly on this one, he does make some important points:

He starts out with this:

What we make of life’s opportunities depends on how well we have prepared to take advantage of them. But first we must recognize opportunity when it comes knocking, or the chance is lost. And lost opportunity costs can be huge not just for individuals, but nations as well.

As a Georgist, I am led to wonder about this.  What I think of when I read this is that one of life's biggest opportunities, as we structure our economy right now, is the privilege of claiming for oneself a choice bit of the natural creation or the community creation -- without being required to compensate the community for what one has taken.  The former includes natural resources, such as ports, water, the electromagnetic spectrum, and the oceans -- not to mention breathable air.  The latter includes that which the community has created, through both public spending and private spending: land value, created by the presence of concentrations of population due to favorable climate, attractive views, cultural amenities, and through public spending on such public goods as infrastucture (airports, highway systems, bridges, water delivery, sanitary sewer and stormwater runoff systems, public transportation, schools, emergency services, libraries, public health, parks, etc.), and what might be either public sector or private sector spending, on electricity, cable TV, WiFi, railroads.

All these things conspire to make some land more valuable than other land.  Those who have title to valuable land get to collect rent from their fellow human beings, just as if they, personally, could take credit for all those natural, public and private amenities.  What an opportunity!  Shouldn't the smartest among us be permitted to privatize all that economic value?  Isn't that what opportunity is all about?

NO!   

Advances in Local Emergency Services: How Should We Pay for Them?

Advances in emergency services can make one town a better place to live than another.  Here are two examples from my home town.

• defibrillators in every police car, and every police officer trained in their use, can save lives that would otherwise be lost;
   
• EMS workers trained in therapeutic hypothermia protocol, ambulances equipped with appropriate supplies, and ER and hospital staff familiar with this innovation can save lives that would otherwise be lost
   

Would you pay more to live in a community that had adopted these innovations?

Probably.

The question is to whom you should pay it, and based on what logic.

Tax Analysts column: The Price of Civilization

Link: Tax Analysts: The Price of Civilization.

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

The third paragraph says

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

Leona Helmsley’s Fortune May Go to Benefit Dogs

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

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

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

Democracy and Opportunity: A New Paradigm in Tax Equity

Link: http://taxprof.typepad.com/taxprof_blog/2008/06/repetti-democra.html#more

I came across an abstract for an article which I suspect, on 3rd reading, is a comparison of the FairTax with the current income tax with respect to opportunity in America. 

I was excited by a couple of statements -- 

This article proposes that the principal equity goal underlying a just government is the creation of equal opportunities for all citizens to achieve self realization, i.e. to maximize their potential. It proposes, therefore, that a tax should be designed to achieve equal opportunity for self realization as one of its principal goals. Viewing equal opportunity for self realization as a design issue leads to the identification of another principle that is foundational - the promotion of democracy.

And disappointed by what I think is its favoring of the income tax.   Yes, the income tax is vastly superior to the Boortz FairTax, which, I realized on my 3rd or 4th reading of the abstract, was only alternative under consideration.

Is LVT the answer to all our problems?

My local newspaper has set up a facility to permit comments on articles and opinion pieces, and I frequently respond to what I read.  Yesterday, I posted a comment to an article entitled Office owners strive to retain tenants whose thumbnail description says "In tough times, office building owners often look for other sources of tenants besides relocations to their properties."  Today I went back and someone had posted the comment, " Your sole issue is land value tax. Am I right?"

 

A Few Inconvenient Truths about the Property Tax

I'm pleased to share (with permission of the author) something that appeared on a mailing list I subscribe to. The conversation was along the lines of "how do we share the idea of land value taxation [a reform of the property tax] with people who are used to hating the property tax?"

Roy Langston wrote,

When I encounter the usual unreasoning hatred of property taxes, I just point out a few inconvenient truths, along these lines:

Why Smart People should shun the "FairTax" concept

I came across a piece entitled "Why Democrats should love the FairTax," written by Laurence J. Kotlikoff, a professor of economics at Boston University, an economic adviser to Mike Gravel and a consultant to FairTax.org.

I continue to be amazed how even economists, who should know better -- far better -- than to even think about a sales tax as a solution to anything, can be in favor of such an alternative.

a tax reformer does the family 1040's

I've heard it said that voting and paying taxes are two of the major sacraments of citizenship. Having spent a significant part of the past week working on the machinations of the latter for several different family members, I am weary of the sacramental qualities of income taxes.  It isn't that I think taxes are a bad thing.  But our current system of taxation is both fundamentally wrong and, having said that, unbelievably convoluted.

Most of the commentators I read and hear are only interested in simplifying the income tax. A few propose getting rid of the income tax and replacing it with a sales tax, which I regard as simpler, but nearly as evil as an income tax from a number of points of view.   And that puts aside the question of whether the necessary rate for the so-called "FairTax" is 23% (or 30% in the way we're used to thinking of sales taxes) or closer to 60%, as I understand is more realistically the case.

California's Proposition 13 and Parcel Taxes: Adding insult to injury for new property owners

Link: SignOnSanDiego.com > Parcel tax to bolster schools is proposed.

Readers of this blog are probably aware that 30 years ago California capped its property tax at 1% of a property's assessed value, and capped the increase in assessments on individual properties at 2% per year, until they changed hands, at which point the transaction price would become the new assessed value.  This means that two families in identical neighboring homes on similar lots could be paying very different property taxes: the people who have lived there for 30 years are paying about 90% more than what they paid in 1978 (2% compounded), while land values (and therefore house prices) have risen by hundreds -- often many hundreds -- of percent since 1978.  And yes, the Supreme Court in 1992 managed to say this this was acceptable -- though it is difficult to believe that with another 16 years of data ANYONE could have looked at the results and reached the same conclusion.

This measure has starved local government and made them hungry for sales tax revenue.  It has starved the school systems, taking it from among the most respected in the country to quite far down the list.  Towns have considered closing their libraries for lack of funding.  Parks suffer, as documented by David Cay Johnston in his recent book Free Lunch.

Now there is a proposal to add insult to injury:

Taxes as oppression, taxes as incentives: Alabama

Friday night's PBS NOW and Bill Moyers Journal were a powerful combination.   My local station shows NOW first, followed immediately by BMJ.  NOW showed three families in Alabama, including a hard working couple whose income places them at roughly the poverty level.  They pay sales taxes of 10% on their purchases, even on food.  They only recently got indoor plumbing.

The footage also showed one of my heroes, Susan Pace Hamill, law professor at the University of Alabama, who has written several important papers, all available online [and highly recommended], about the inconsistency of Alabama's tax code [2002] and of the federal tax code [2006] with the ideals we say we hold dear.  I applaud her efforts and her scholarship and her good heart ---  and I don't think she sees the half of it, or the solution.

Revitalizing older cities

Recently, four city mayors in Connecticut proposed that cities ought to  be permitted to impose a 1% sales tax if they chose.  Those who spend much time thinking about incentives recognize this as a poor idea.  I particularly liked this pair of letters to the editor in the New London Day:

Connecticut: Should Cities Use a Sales Tax?

Newspapers in New London ("Urban Mayors Push For Local Sales-tax Option") and Stamford ("Malloy: Cities should have sales tax option") had articles today describing 4 Connecticut cities' mayors' aversion to increasing the property tax.

Four urban mayors, including Kevin Cavanagh of New London, urged the legislature Monday to give municipalities the ability to levy a local sales tax of up to 1 percentage point to raise revenue without resorting to property-tax increases.

The articles quote Dannell Malloy of Stamford, Kevin Cavanagh of New London, Bill Finch of Bridgeport, and Dan DeStefano of New Haven as endorsing the idea.

Malloy, along with mayors Bill Finch of Bridgeport, John DeStefano of New Haven and Kevin Cavanagh of New London, said cities need other options for raising revenue besides burdening constituents with more property taxes.

The FairTax, and why it isn't fair or wise

One of my standing google alerts took me to an article on Florida taxes. On the comments pages, some people were proposing the FairTax as a good alternative to the current federal income tax.  I ended up posting several comments in response to their statements, and thought I'd cross-post my comments here.

Fortunes Made in Real Estate

Americans have a tendency to respect those who are "self-made men."  This seems to include people whose fortunes have been made in real estate.  The latest example in the news is the outgoing governor of New York, whose father, Bernard Spitzer, reportedly has a $500 million portfolio of properties, most or all in NYC.

I have nothing against real estate developers in their role as developers.  They bring large amounts of money and multiple talents to bear to create new modern buildings on sites previously occupied by more modest buildings suitable to another decade or century. And when they build they generally create the venues in which dozens, even hundreds, of entrepreneurial visions can be made into reality, and where thousands, sometimes tens of thousands, of people can be employed in a single building.  Appropriate development of choice sites, served by existing infrastructure such as NYC's elaborate transportation system and things as prosaic as city water, sanitary sewers, stormwater runoff, and all the other systems that are paid for by we-the-people: schools, public safety, public health, libraries, courts, hospitals, etc., means that specialized work can take in the center of the central business district, conducted by people who come from a 360 degree radius.  It minimizes sprawl on the fringe, and makes the economy work more smoothly.

But there are other facets of the real estate business that I think are "opportunities for plunder" that should be restructured to serve the common good instead of the private good.  This involves a revision of our notions of what is right, what is just, what is rightly private property and what legitimately belongs to the commons.

Closet Georgists and Georgites: Bill Buckley, and others

Link: Jay Nordlinger on Impromptus on National Review Online.

Since Bill Buckley died a few weeks ago, I've read numerous tributes, and a few have mentioned Buckley's abiding interest in the ideas of Henry George.  The newest reference comes from the opening paragraphs of a National Review article today:

Friends, a week ago I put some notes on WFB in Impromptus. (That column is here.) Want a few more notes? Just a few more?

You know that he loved peanut butter. Ate it every morning of his life. Took it everywhere he went (because sometimes you couldn’t get it). But did you also know he had a thing for coffee ice cream? Yes — a real jones for it. I introduced him to Ben & Jerry’s Coffee Heath Bar Crunch — one of the best things on the planet.

(Yes, I know that they are communists or whatever. Just eat the ice cream.)

Note 2: Years ago, I had a spot of trouble finding housing in Manhattan. And he said to me, “Do you know I’m a closet George-ite?” He meant the 19th-century American economist and social thinker Henry George (author of Progress and Poverty).

How I wish that Bill Buckley, and others whose education was good enough to include exposure to the ideas of Henry George, had left/would leave their closets.  (Perhaps the reason has something to do with something related to pluralistic ignorance; perhaps it is something more nefarious.)

Bill Buckley did mention Henry George repeatedly in his writings and on the air, but in passing, as if to run it up the flag pole, rather than as a confident advocate of an idea that might not be popular with his constituency. 

Hotel Roosevelt For Sale at $1 Billion

Link: ROOSEVELT'S UP FOR SALE AT COOL $1B - New York Post.  This article is actually 8 months old, but popped up on a standing google alert in my mailbox, and it contained some factoids I'd not previously seen.  I'm not going to get into the background story (which some might find quite interesting, based on my bit of research).  Rather, I'm going to focus on the land values involved, because they might surprise the ordinary mortal, and provide some food for thought.

The property is just under 1 acre, and currently has a 1,013 room 20-story luxury hotel, built in 1924, on it.  The $1 billion valuation is as a teardown, as a site for a higher and better use, given current markets.   

Landholders, windfalls, productive effort and community revenue

I attempted to post this response to a blog, and ran into a technical error.  But even without the post to which it was responding -- which praised the so-called FairTax -- I though it worth sharing here. 

I'm still in Henry George's camp. Why tax the results of individual human effort -- stealing from the individual, or for that matter the corporation that which he/it created -- BEFORE collecting the economic value of that which the community created?

Financing Municipal Spending through Sales Taxes: an Inferior "Solution"

Chicago will soon have the highest sales tax of any major city in the US.  Not the highest sales tax in the US -- there is a town in northeastern Alabama, Arab, which imposes sales taxes as high as 12% -- but the highest of any major city.  (Alabama's sales taxes -- designed to place the maximum burden on poor people, while making life easier for upper-income residents, particularly the property-owners -- typically tax even groceries!)   An AP article reports:

Among the things Chicago wants to be known for, having the highest total sales taxes of any major U.S. city is probably not one of them.

But that's what it's getting after the Cook County Board voted Saturday to double the county sales tax to 1.75 percent. When added to the city's sales tax, the county' increase has the cumulative effect of setting a 10.25 percent sales tax on goods bought in Chicago.

When the county rate increase takes effect in November, someone buying $100 worth of merchandise in Chicago would pay $110.25.

The rates in New York and Los Angeles are below 8.5 percent. The next highest rate in the country is in Memphis, Tenn., at 9.25 percent.

The tax increase is expected to add about $426 million annually to county coffers, and the money is meant to close a projected $234 million deficit. The budget is also designed to create more than 1,000 new county jobs.