LVTFan's Blog

First-time homebuyers as sharecroppers

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

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

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

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

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

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

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

The Landed Gentry ... this time, in Pakistan

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

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

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

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

and

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

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

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

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

The Ethics of Sharecropping, Taxation ... and Theft

Another "find" in "The Public" from November 14, 1903:

A PROBLEM IN ETHICS.

Jones—Neighbor Smith. I am out of a job; how am I to make a living?

Smith—I have a proposition to make to you. Provide yourself with tackles and go to fishing, and I will give you half you catch.

Jones—I'll do that; thank you; you are very kind, indeed.

And the people laugh at Jones' foolishness and ask: "If he provides his own tackles, what claim has Smith on the fish he takes? Ought not all the fish belong to the man who catches them?"

We think so. But while about it, suppose you tell us the difference between this proposition and the one that Brown made to Wilson when he said: "Get your teams and plows and go to work raising potatoes, and I will give you half the potatoes you raise."

Now, don't answer this question until you have thought over it just a little.  — Living Issues.

Should we tax wages?  Should indivdual (or corporate) landholders be permitted to pocket the land rent?

It seems to me that we as a society have a right to tax wages only after we've collected virtually all the land rent, and then only if we agree that the resulting revenue is insufficient to fund the legitimate purposes of government.  (Reasonable people can differ about what ought to be done by the public sector; that's a separate conversation.)

Land rent here includes not only the rent on unimproved land values (that is, the value of each site before accounting for the improvements its owner has put on it himself or bought from someone else who did) but also on things like electromagnetic spectrum (the "airwaves"), primetime landing rights at congested airports, geosynchronous orbits, on-street parking in congested downtowns, the use of water where it is scarce, rights to pollute air and water, the withdrawal of scarce natural resources, etc.

Life on a Small Island

News that 13 Uighurs, confined to the camp at Guantanamo for a number of years, are being sent to Palau and 4 others to Bermuda, on guest worker status, intrigued me, particularly in light of two short videos I watched last night.

I've visited Bermuda perhaps a dozen times over the past 35 years, and virtually every trip has been an opportunity to think about life in community, about how to run and finance government, etc.  (Riding a scooter from one end to the other provides a lot of time to observe and think!  Bermuda is perhaps 17 miles from tip to tip, and consists of many islands.  One crosses a few small bridges and one major causeway.

Last night, I visited the new IU website at http://www.theiu.org/.  The International Union is a Georgist group whose mission statement is as follows:

The International Union was founded to promote permanent peace and prosperity for everyone by re-establishing mankind’s natural relationship with land.

The two films to which I refer both feature my friend Dave Wetzel of the Labour Land Campaign, and a third one of them is a visual version of a piece I've had on the wealthandwant website for several years.

• Robinson Crusoe: Land, Labor, Capital - the bits that Robert Louis Stevenson missed [5:16 minutes]
  
• The Desert Island: A clean slate -- the architecture of raising public revenue in a moral economy [2:37 minutes]
• Victoria Coach Station: The Duke of Westminster has fingers in many pies. [2:18 minutes]  See also Who should Get the Land Rent? 

Also on the wealthandwant website are some other pages which the Uighurs story brought to mind, some related to Robinson Crusoe, some related to tenancy and sharecropping:

Land and Freedom

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

WHAT LAND AND FREEDOM STANDS FOR

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

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

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

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

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

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

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

From the March/April issue:

WHAT LAND AND FREEDOM STANDS FOR

We declare:

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

We therefore demand:

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

ARGUMENT

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

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

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

Yertle the Turtle, and Tax Reform

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

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

For tax reform, topple 'turtle stack'

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

Prof finds 3 reasons most voters oppose altering state charter

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

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

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

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

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

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

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

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

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

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

Her solution to those problems? Newcomers to the state.

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

© 2009 The Huntsville Times. All rights reserved.

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

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

-- Henry George, The Land Question

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

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

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

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

An Hour with the BBC World Service

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

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

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

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

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

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

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

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

The BBC's website says this:

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

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

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

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

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

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

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

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

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

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

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

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

The Rich List

I'm playing catch-up, after having been occupied with other work for the past month or so, and came across some articles from UK publications listing the sources of wealth for the 2000 or so most wealthy people in the UK. 

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

See a few entries down, where Michael Kinsley laid it out this way in the Washington Post:

Perusing the Forbes 400 list of America's richest people, it's striking how few of them made the list by building the proverbial better mousetrap. The most common route to gargantuan wealth, like the route to smaller piles, remains inheritance. The ability to pass money along to your kids may motivate many a successful executive or investor to work harder, but it can't possibly motivate those kids to inherit harder in order to pass it along once again.

Dozens of Forbes 400 fortunes derive from the rising value of land or other natural resources. These businesses are fundamentally different from mousetrap building. Land does not need to become "better" to increase in value, and that value increase doesn't produce more land. Yet other fortunes depend directly on the government. The large fortunes based on health care and pharmaceuticals would not exist if not for Medicare and Medicaid. The government hands out large fortunes even more directly in forms as varied as

• cable-TV franchises;
• cellphone licenses;
• drilling, mining and mineral rights;
• minority small-business loans; and
• other special treatment.

We must conserve the earth -- yes.  But we must also share its bounty with all, not permit the privatization of that bounty.  Henry George put it this way:

We sail through space as if on a well-provisioned ship.  If food above deck seems to grow scarce, we simply open a hatch -- and there is a new supply. And a very great command over others comes to those who, as the hatches are opened, are permitted to say: "This is mine!"

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

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

In case it isn't obvious, I'm not opposed to fortunes which come from creating better mousetraps!  I'm quite in favor of them.  But we need to distinguish between what monopoly privilege creates, and what hard work creates, and LVT does that.

Pirates threatening revenge ...

The right to stay in business ...

The threat of pirates to avenge the deaths of three of their number sent me in search of something Henry George wrote many years ago, using Captain Kidd as an example:

Henry George:  The Land Question (1881)

The galleys that carried Caesar to Britain, the accoutrements of his legionaries, the baggage that they carried, the arms that they bore, the buildings that they erected; the scythed chariots of the ancient Britons, the horses that drew them, their wicker boats and wattled houses–where are they now? But the land for which Roman and Briton fought, there it is still. That British soil is yet as fresh and as new as it was in the days of the Romans. Generation after generation has lived on it since, and generation after generation will live on it yet. Now, here is a very great difference. The right to possess and to pass on the ownership of things that in their nature decay and soon cease to be is a very different thing from the right to possess and to pass on the ownership of that which does not decay, but from which each successive generation must live.

To show how this difference between land and such other species of property as are properly styled wealth bears upon the argument for the vested rights of landholders, let me illustrate again.

Captain Kidd was a pirate. He made a business of sailing the seas, capturing merchantmen, making their crews walk the plank, and appropriating their cargoes. In this way he accumulated much wealth, which he is thought to have buried. But let us suppose, for the sake of the illustration, that he did not bury his wealth, but left it to his legal heirs, and they to their heirs and so on, until at the present day this wealth or a part of it has come to a great-great-grandson of Captain Kidd. Now, let us suppose that some one – say a great-great-grandson of one of the shipmasters whom Captain Kidd plundered, makes complaint, and says: "This man's great-great-grandfather plundered my great-great-grandfather of certain things or certain sums, which have been transmitted to him, whereas but for this wrongful act they would have been transmitted to me; therefore, I demand that he be made to restore them." What would society answer?

Society, speaking by its proper tribunals, and in accordance with principles recognized among all civilized nations, would say: "We cannot entertain such a demand. It may be true that Mr. Kidd's great-great-grandfather robbed your great-great-grandfather, and that as the result of this wrong he has got things that otherwise might have come to you. But we cannot inquire into occurrences that happened so long ago. Each generation has enough to do to attend to its own affairs. If we go to righting the wrongs and reopening the controversies of our great-great-grandfathers, there will be endless disputes and pretexts for dispute. What you say may be true, but somewhere we must draw the line, and have an end to strife. Though this man's great-great-grandfather may have robbed your great-great-grandfather, he has not robbed you. He came into possession of these things peacefully, and has held them peacefully, and we must take this peaceful possession, when it has been continued for a certain time, as absolute evidence of just title; for, were we not to do that, there would be no end to dispute and no secure possession of anything."

Now, it is this common-sense principle that is expressed in the statute of limitations – in the doctrine of vested rights. This is the reason why it is held – and as to most things held justly – that peaceable possession for a certain time cures all defects of title.

But let us pursue the illustration a little further:

A Price for Existence

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

A Price for Existence.

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

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

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

How Might We Stimulate the Economy -- at minimal expense?

Spending federal dollars is not the only way to stimulate the economy, though it may be a relatively speedy one.  But I think we ought to be considering other ways, too.

The catchphrase "Think Globally, Act Locally" comes to mind.  There are things which states and local areas can do to help unburden the economy.  If someone thinks it isn't time yet to take those steps, I'd like to know how they will know when the time has come.

We heard calls recently for the federal government to provide the funding for state sales tax "holidays"  -- a week here, a week there -- to remove the weight of sales taxes from the consumer.    Well, maybe the states, and the cities and towns which impose sales taxes, ought to consider shifting away from a sales tax.  Alabama and Mississippi impose a sales tax even on groceries.  Sales taxes in Chicago are 10.25%!  No wonder people want a vacation from them.  But wouldn't we simply be smarter to shift away from dumb taxes like the sales tax, rather than shifting consumer spending into a shorter window, causing buyers to finance their purchases and pay interest to the credit card companies?

In the same vein, perhaps states and cities which are concerned about the health of their local economy ought to look at each of the things they tax, and decide whether those taxes help or hurt the economy.

Should Landlords Share in their Tenants' Profits? Should our Urban Landlords be Society's Big Winners?

NYT 2/1/09: Recession Has Landlords of Retail Tenants Extending Discounts of Their Own

As you read this, think about what contributions each landlord mentioned -- or any other you know -- has made to society, in his role as landlord, during his ownership of his building and land, be it 3 years, or 30, or even 300 years.  Think about how we have our incentives set up.

a few lifts to provide the flavor:

That area is now one of the city’s liveliest late-night strips, which made it particularly painful for Ms. Gillis to receive an eviction notice last month because she owed $13,556.26 in back real estate taxes. But in a sudden change of heart, her landlord recently offered to let Ms. Gillis stay for two more years, and even proposed paying part of her future real estate taxes — which retail tenants normally pay. ...

Just a year ago, the owners of New York’s most coveted retail and restaurant spaces held almost unassailable power to dictate the terms of their leases. But the recession is changing that equation, as rapidly rising vacancy rates and bankruptcies are making it hard to find new tenants.

And so some small businesses are finding a silver lining in the recessionary clouds: they suddenly have leverage with their landlords.

Six months ago, for instance, the landlord of the Holland Bar in Hell’s Kitchen terminated the lease because he was confident of finding a higher-paying tenant or developing luxury condos. But when he found no takers, he offered the space back to the bar, at a 20 percent increase in rent. The Holland reopened last week.  ...

That does not mean that all of the city’s landlords, whether in upscale Manhattan districts or shopping strips in Brooklyn and Queens, are cutting their tenants a break; many shops are still facing sharply rising rents as leases come due.

Indeed, many landlords find themselves in a bind because they paid stiff prices for property in recent years and need to cover hefty mortgage payments. On average, Manhattan landlords paid $3,348 per square foot for retail properties in 2008, compared with $538 per square foot in 2004, according to the brokerage Cushman & Wakefield.

Sharecropping on Madison Avenue, NYC

Even Luxury Stores Can’t Afford Madison Ave - NYTimes.com

a few paragraphs from the middle of the article:

Madison Avenue has traditionally catered to the wealthy, but until Polo Ralph Lauren opened at the former Rhinelander Mansion on 72nd Street in 1986, most of the shops were private boutiques like E. Braun. In 1998, the stretch on Madison Avenue known as the Gold Coast surpassed Causeway Bay in Hong Kong as the most expensive shopping strip in the world, Cushman & Wakefield reported, with annual rents averaging $550 a square foot. By then, Giorgio Armani had two 16,000-square-foot stores on Madison and Hermès was about to move there from 57th Street.

For many international retailers, a Madison Avenue address was viewed as essential for promoting their brand, even if sales were not robust enough to justify the rent. Often, part of the rent came out of the marketing budget —a practice that brokers say is fast disappearing.

Rents began escalating rapidly a few years ago, after the stores on the Madison Avenue side of the General Motors Building, at Fifth Avenue on 58th and 59th Streets, were expanded and began commanding annual rent of more than $1,000 a square foot, said Benjamin Fox, the president of Winick Realty Group, a New York retail brokerage.

In 2007, fancy jewelers clustered on the avenue, especially between 61st and 64th Streets. They were able to afford higher rents because their costly merchandise could fit into smaller spaces and more revenue could be squeezed out of every inch. Rents skyrocketed to $1,250 a foot or even more. (Even so, Fifth Avenue between 49th and 59th Streets is now ranked as the world’s costliest shopping strip, with asking rents as high as $2,000 a foot. Its luxury tenants share the avenue, however, with shopping-mall clothing chains like Diesel and Abercrombie & Fitch.)

Retailers typically expect their rent to equal about one-tenth of their sales volume. “In a prime location like Madison Avenue, most retailers will change that to 25 percent,” said Joel Isaacs, the president of Isaacs & Company, a retail brokerage. Even under that formula, a tenant paying $1.25 million for 1,000 square feet would need to have nearly $5 million in annual sales.

One tenth of sales volume!  One quarter of sales volume in prime locations!!  And that isn't for a fancy, well-outfitted building; it is for the prime location.  It used to be that retailers marked up the goods they bought at wholesale by 100%.  If that is still the case, then landlords are getting 1/5 of gross sales in ordinary location and 1/2 in prime locations.

Landlords, as the classical economists recognized, grow wealthy in their sleep.  Having acquired excellent sites, they need do nothing further.  They are permitted to reap what others sow, and we're so used to it we don't even notice.  Their trusts can collect the rental income in perpetuity, long after they're dead.  Remember the name Astor?

If we relieved the landlords of the portion of that "take" which is a function of the value of the location, we would no longer need to tax wages, and sales, and buildings.  Wages would rise.  Entrepreneurial opportunities would rise as prime sites got put to better use.  

Remember Leona Helmsley's oft-quoted statement?  It WASN'T about tax evasion; it was about how we have things set up:

"We don't pay taxes, only the little people pay taxes."

See also Winston Churchill, at quoted at http://lvtfan.typepad.com/lvtfans_blog/2008/07/leona-helmsleys.html.   .... 100 years ago, in 1909 ...

See also http://www.wealthandwant.com/themes/Sharecropping.html.  see in particular Joe Stliglitz's comment:

My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it's worse than a tax. Because it's not a land tax, it's a tax on their labor. And it's a tax that goes to the landlord rather than to society.

Who should that tax go to?  We the people, or the lucky-duck landholders of NYC??   

Is this a structure that serves us well?