LVTFan's Blog

Chrystia Freeland: Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else

Chrystia Freeland: Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else.

Henry George is the most famous American popular economist you've never heard of, a 19th century cross between Michael Lewis, Howard Dean and Ron Paul. Progress and Poverty, George's most important book, sold three million copies and was translated into German, French, Dutch, Swedish, Danish, Spanish, Russian, Hungarian, Hebrew and Mandarin. During his lifetime, George was probably the third best-known American, eclipsed only by Thomas Edison and Mark Twain. He was admired by the foreign luminaries of the age, too -- Leo Tolstoy, Sun-Yat Sen and Albert Einstein, who wrote that "men like Henry George are unfortunately rare. One cannot image a more beautiful combination of intellectual keenness, artistic form and fervent love of justice." George Bernard Shaw described his own thinking about the political economy as a continuation of the ideas of George, whom he had once heard deliver a speech.

Later, she writes,

What George found most mysterious about the economic consequences of the industrial revolution was that its failure to deliver economic prosperity was not uniform -- instead it had created a winner-take-all society: "Some get an infinitely better and easier living, but others find it hard to get a living at all. The 'tramp' comes with the locomotives, and almshouses and prisons are as surely the marks of 'material progress' as are costly dwellings, rich warehouses and magnificent churches. Upon streets lighted with gas and patrolled by uniformed policeman, beggars wait for the passer-by, and in the shadow of college, and library, and museum, are gathering the more hideous Huns and fiercer Vandals of whom Macaulay prophesied."

George's diagnosis was beguilingly simple -- the fruits of innovation weren't widely shared because they were going to the landlords. This was a very American indictment of industrial capitalism: at a time when Marx was responding to Europe's version of progress and poverty with a wholesale denunciation of private property, George was an enthusiastic supporter of industry, free trade and a limited role for government. His culprits were the rentier rich, the landowners who profited hugely from industrialization and urbanization, but did not contribute to it.

George had such tremendous popular appeal because he addressed the obvious inequity of 19th century American capitalism without disavowing capitalism itself. George wasn't trying to build a communist utopia. His campaign promise was to rescue America from the clutches of the robber barons and to return it to "the democracy of Thomas Jefferson." That ideal -- as much Tea Party as Occupy Wall Street -- won support not only among working class voters and their leaders, like Samuel Gompers, but also resonated with many small businessmen. Robert Ingersoll, a Republican orator, attorney and intellectual, was a George supporter. He urged his fellow Republicans to back his man and thereby "show that their sympathies are not given to bankers, corporations and millionaires."

 

 

I commend the entire post, adapted from Freeland's new book, Plutocrats.  It ends with these paragraphs:

"America today urgently needs a 21st century Henry George -- a thinker who embraces the wealth-creating power of capitalism, but squarely faces the inequity of its current manifestation. That kind of thinking is missing on the right, which is still relying on Reagan-era trickle-down economics and hopes complaints about income inequality can be silenced with accusations of class war. But the left isn't doing much better either, preferring nostalgia for the high-wage, medium-skill manufacturing jobs of the post-war era and China-bashing to a serious and original effort to figure out how to make 21st century capitalism work for the middle class.

Globalization and the technology revolution aren't going away -- and thank goodness for that. Industrialization didn't go away either. But between 1886, when George lost the mayoral race, and the presidency of FDR, American progressives invented, fought for and implemented a broad range of new social and political institutions to make capitalism serve the whole of society -- ranging from trust-busting, to the income tax, to the welfare state.

We are living in an era of comparably tumultuous economic change. The great challenge of our time is to devise the new social and political institutions we need to make the new economy work for everyone. So far, that is a historic task neither party is taking on with enough energy, honesty or originality."

Those looking for a starting point might look for Walt Rybeck's book, Re-Solving the Economic Puzzle.

Along the same lines, you might find interesting an earlier post here, an article by Thomas Shearman entitled "Henry George's Mistakes."  (He was a co-founder of Shearman & Sterling, and went on to write some excellent articles on plutocracy in The Standard, October, 1887.)

The Single Tax -- a succinct 1911 description

THE SINGLE TAX.

Mr. Henry George first formulated this idea, which has grown steadily in favor, in 1879. Single-tax men assert as a fundamental principle that all men are equally entitled to the use of the earth; therefore, no one should be allowed to hold valuable land without paying to the community the value of the privilege. They hold that this is the only rightful source of public revenue, and they would therefore abolish all taxation - local, state and national - except a tax upon the rental value of land exclusive of its improvements, the revenue thus raised to be divided among local, state and general governments, as the revenue from certain direct taxes is now divided between local and state governments.

The single tax would not fall on all land, but only on valuable land, and on that in proportion to its value. It would thus be a tax, not on use or improvements, but on ownership of land, taking what would otherwise go to the landlord as owner.

In accordance with the principle that all men are equally entitled to the use of the earth, they would solve the transportation problem by public ownership and control of all highways, including the roadbeds of railroads, leaving their use equally free to all.

The single-tax system would, they claim, dispense with a horde of tax-gatherers, simplify government, and greatly reduce its cost; give us with all the world that absolute free trade which now exists between the States of the Union: abolish all taxes on private issues of money; take the weight of taxation from agricultural districts, where land has little or no value apart from improvements, and put it upon valuable land, such as city lots and mineral deposits. It would call upon men to contribute for public expenses in proportion to the natural opportunities they monopolize, and make it unprofitable for speculators to hold land unused or only partly used, thus opening to labor unlimited fields of employment, solving the labor problem and abolishing involuntary poverty.

source: http://www.gutenberg.org/files/20190/20190.txt

The Handy Cyclopedia of Things Worth Knowing: A Manual of Ready Reference
Joseph Triemens, 1911

Parking Revenue funds "Room for All"

In the ocean-front Delaware town of Rehoboth Beach, seasonal parking fees provide a major revenue source:

In Rehoboth Beach, parking meters -- at $1.50 per hour -- are big business. They bring in $2.58 million for the city's $14.75 million operating budget.

Fines on expired meters add another $667,000, bringing the total to more than $3.2 million. More comes from parking permit fees, fines for parking without a permit and collections from a lot the city operates at the north end of the community. All told, parking is the largest single segment of the city budget.

Meters, some say, are one way the city can capture a revenue stream from the thousands of summer visitors who don't rent a cottage or stay in a hotel room, or who rent accommodations outside the city limits.

City Manager Gregory J. Ferrese said he believes meter and parking permits eliminate the need for beach fees, which are routinely charged in New Jersey resorts.

This is not to say that one can't use the beaches without paying for parking; Resort Transit brings people in by bus from the Coastal Highway, and the Jolly Trolley has been transporting tourists and others from nearby Dewey Beach for many decades.

But parking revenue is a great example of a user fee.  One pays for what one takes, and if one doesn't need, one doesn't pay.

A few years ago, the price of parking varied according to location; more recently, they seem to have returned to a one-price-at-all-meters system, which puzzles me a bit.  But after late September, the parking meters disappear until late spring, because there usually is plenty of parking to meet the demand.

I seem to recall reading that on-street parking is properly priced if about 15% of spots are available at any particular time.  I suspect that that rule of thumb may not hold in RB in season, though I suspect that RB could charge more for ocean-block parking.  (I suspect that nearly 100% of RB's parking spots will be occupied during most hours of peak season, at any reasonable price.)

Rehoboth is from the Hebrew for "space for all."  One source says "City of Room" "Big City" "Broad Places, Streets" "Streets, Wide Spaces."  Interestingly, when Rehoboth Beach was first laid out, by the Methodist diocese of Wilmington, as a camp meeting ground, the streets were designed to be wide and become wider as they approached the ocean, so all could have some view and access.

As a society, how do we create "space for all?" By structures and policies which encourage all of us to take only what we'll use.  No land speculation, for example. (Rehoboth Beach fails on this count; its low property tax and use of 30+ year old assessments encourage people to hold onto empty land and unaltered cottages as a low-cost nest-egg; a new home far from the beach may pay far more in taxes than an older one close to it which sells for twice the price).  And a 3% tax on transfers -- half to the city, half to the county -- discourages transactions.)

Some of RB's revenue comes from a 3% tax on rental income.  I'm intrigued to know that parking brings in more than the tax on rentals.

Delaware, wisely, does not use a sales tax.  Rehoboth Beach has 3 large outlet malls just beyond its borders, which attract shoppers from nearby Ocean City, Maryland, and even from southern New Jersey; the latter arrive by ferry for a day of tax-free shopping.

And of course the Federal government is generous with paying for beach replenishment, which helps keep the renters and beachgoers coming, at little or no cost to the property owners in RB.

In any case, parking fees are Natural Public Revenue

 

Brief Statement of Single Tax Philosophy

This is from Joseph Dana Miller, the editor of the Single Tax Year Book (1917), and it is a concise statement which might help make clear why I think this such an important reform in the 21st century.

Men have a right to land because they cannot live without it and because no man made it. It is a free gift of nature, like air, like sunshine. Men ought not to be compelled to pay other men for its use. It is, if you please, a natural right, because arising out of the nature of man, or if you do not like the term, an equal right, equal in that it should be shared alike. This is no new discovery, for it is lamely and imperfectly recognized by primitive man (in the rude forms of early land communism) and lamely and imperfectly by all civilized communities (in laws of "eminent domain", and similar powers exercised by the State over land). It is recognized by such widely differing minds as Gregory the Great and Thomas Paine (the religious and the rationalistic), Blackstone and Carlyle (the legal and the imaginative). All points of view include more or less dimly this conception of the peculiar nature of land as the inheritance of the human race, and not a proper subject for barter and sale.

This is the philosophy, the principle. The end to be sought is the establishment of the principle -- equal right to land in practice. We cannot divide the land -- that is impossible. We do not need to nationalize it that is, to take it over and rent it out, since this would entail needless difficulty. We could do this, but there is a better method.

The principle, which no man can successfully refute or deny even to himself, having been stated, we come now to the method, the Single Tax, the taking of the annual rent of land -- what it is worth each year for use -- by governmental agency, and the payment out of this fund for those functions which are supported and carried on in common -- maintenance of highways, police and fire protection, public lighting, schools, etc. Now if the value of land were like other values this would not be a good method for the end in view. That is, if a man could take a plot of land as he takes a piece of wood, and fashioning it for use as a commodity give it a value by his labor, there would be no special reason for taxing it at a higher rate than other things, or singling it out from other taxable objects. But land, without the effort of the individual, grows in value with the community's growth, and by what the community does in the way of public improvements. This value of land is a value of community advantage, and the price asked for a piece of land by the owner is the price of community advantage. This advantage may be an excess of production over other and poorer land determined by natural fertility (farm land) or nearness to market or more populous avenues for shopping, or proximity to financial mart, shipping or railroad point (business centers), or because of superior fashionable attractiveness, (residential centers). But all these advantages are social, community-made, not a product of labor, and in the price asked for its sale or use, a manifestation of community-made value. Now in a sense the value of everything may be ascribed to the presence of a community, with an important difference. Land differs in this, that neither in itself nor in its value is it the product of labor, for labor cannot produce more land in answer to demand, but can produce more houses and food and clothing, whence it arises that these things cost less where population is great or increasing, and land is the only thing that costs more.

To tax this land at its true value is to equalize all people-made advantages (which in their manifestation as value attach only to land), and thus secure to every man that equal right to land which has been contended for at the outset of this definition.

From this reform flow many incidental benefits -- greater simplicity of government, greater certainty and economy in taxation, and increased revenues.

But its greatest benefit will be in the abolition of involuntary poverty and the rise of a new civilization. It is not fair to the reader of a definition to urge this larger conclusion, the knowledge of which can come only from a fuller investigation and the dawning upon his apprehension of the light of the new vision. But this conclusion follows as certainly as do the various steps of reasoning which we have endeavored to keep before the reader in this purely elementary definition.

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:

Toward an Ethical Democratic Free Society

Our argument for justice and liberty -- the doctrines of Henry George -- depends upon successfully synthesizing the social sciences and philosophy.  Our scientific work in this area builds us a rostrum from which we can teach the fundamental principles of ethical democracy.   ...

As Georgists we are interested

• in establishing site value taxes and taxes on the economic rent of other resources,
• in determining the economic and social impacts of all other taxes and constructing an intelligent tax system that abolishes speculation and unearned incomes and encourages productive labor, progressive entrepreneurship and socially progressive investments, while bearing the least heavily on labor and capital;
• in promoting the free flow of goods, ideas and people across all boundaries, local and national;
• in reducing State intervention in the economy and society to the minimum and developing effective and socially oriented self regulation in all occupations, professions and industries;
• in reviving mutual aid and substituting it for State aid in the solution of economic, social and personal problems;
• in establishing equality of opportunity in all areas of economic and social life and in ridding the economy and society of all vestiges of monopoly and privilege. 

In a word, we seek to make it possible for each individual to become a free person developing his faculties to the highest in an ethical democratic free society.

 

Taxes kill jobs

This came by email today, from my friend Mike Curtis, and, with his permission, I'm sharing it here:   Dear friends and acquaintances:     I am daily reminded of the passage: “the only thing that is necessary for evil to prevail is for too many good men to do nothing”  I just heard on the radio that science is advancing in the realm medicine, energy, and agricultural.  We are now able to multiply productivity in manufacturing due to the use of robotics.  Yet in spite of all the gains in material progress poverty is increasing.   “It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.”   “This association of poverty with progress is the great enigma of our times. It is the central fact from which spring industrial, social, and political difficulties that perplex the world, and with which statesmanship and philanthropy and education grapple in vain. From it come the clouds that overhang the future of the most progressive and self-reliant nations. It is the riddle which the Sphinx of Fate puts to our civilization and which not to answer is to be destroyed. So long as all the increased wealth which modern Progress brings goes but to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent. The reaction must come. The tower leans from its foundations, and every new story but hastens the final catastrophe. To educate men who must be condemned to poverty, is but to make them restive; to base on a state of most glaring social inequality political institutions under which men are theoretically equal, is to stand a pyramid on its apex.” Henry George 1879 (Progress and Poverty)   I am not running for political office, but if I can enlighten anyone, I believe my efforts will have been worth it.  The following my reaction to  the prevailing wisdom from all the presidential candidates, including the one in the White House.   If you think my thoughts are worth consideration, please let me know, and forward them to others.  If you think I’m wrong, please let me know where I went wrong.   Merry Christmas, Mike Curtis     Taxes kill jobs "Taxes kill jobs" is the message of political candidates.  The American economic system causes unemployment and  recessions; that is true, but without revenue and the role of government the U.S. would surely be a third world country.   However, there is one tax system that actually creates jobs.  It’s not based on the socialistic principle of “Ability to Pay,” like most of our taxes.  It’s based on the value of the “Benefits Received” by the tax payer.  It’s doesn’t confiscate a percentage of income, taking more from those who have a greater income, even when the benefits they receive are the same as others.  It doesn’t tax wages, which are the earned income of labor; it doesn’t tax  buildings, machines, or inventories, which were acquired from the people who made them; It doesn’t tax sales or consumption, which is the only reason anyone produces anything.   It is simply a charge for the value of the opportunities to which the taxpayer has been given exclusive control.  It is a tax on the value of land.  It can be taxed at 100% without in any way adding to the cost of production.  It doesn’t add to the value of land or the value of things produced on the land.  It simply collects what would otherwise go to the holders of land as an un-earned income when the land is actually used.   It insures that the government has ample revenue for the legitimate needs of society, while limiting the government to those values which cannot be attributed to the efforts of individuals or corporations, but are socially created by the community as a whole and attach to the land.  It cannot be evaded, because the land cannot be hidden.  The reason wages no longer rise as inventions and new technologies increase the results of labor is because people have no independent way to employ themselves. If you’re among the least skilled workers, no matter how little machines cost or how much those machines increase the results of your labor, you have to bid against other people who want the same job; the result is that wages tend to a bare minimum -- superseded by the legal Minimum Wage.   For workers with superior skills and knowledge, those with whom employers can increase their profits, it is simply a matter of supply and demand.  The higher the pay, the greater the incentive to learn the skill and acquire the knowledge.  The wages of any qualified worker will be determined by two opposing factors.  First, the demand for the goods or services they produce will encourage employers to offer wages that tend to equal the greater value of their contribution to the product or service.  But, as the higher pay stimulates others to acquire similar skills and knowledge the increased supply of superior workers competing against each other, brings wages down until the wages that reward the special skill are no longer high enough to stimulate others to acquire the same skill and knowledge required for the job.  Remember when computer programers earned twice what they do now?  The supply increased and their wages went down. They still make more than the average worker, because it’s not so easy to learn computer programing. The supply has not exceeded the demand. Although the vast majority of workers have no way to employ themselves, and the general level of wages haven’t increased in 40 years, it is not a natural law that wages will always tend to remain static.  The United States has 700,000 square miles of arable land.  That is less than 450 people per square mile.  France has more than 850.  The U.K. has more than 2,500 and Japan has more than 7,500 people per square mile.   All production takes place on land.  The reason why more workers are looking for employment than landowners are looking for workers is that an enormous portion of the arable land in America is unused or grossly under used; simply held as an asset.  Suppose that cities were developed to their full potential. The slums with empty houses and abandoned factories were redeveloped to their full potential; the surface parking lots were replaced with multi-story parking garages; the grossly underdeveloped sites in the high-rise business districts were put to their highest and best use.  Suppose the suburbs were carefully planed and developed with wooded and open parkland instead of relying on land speculators posing as farmers to provide open space; suppose we eliminated sprawl with its leapfrogging patterns that increase the cost of the infrastructure, waste land, and separate people from work and social relations; suppose we created a disincentive to hold idle, mineral land that increases in value.  That is to say: What would happen if the majority of now privately held idle land was put to good use?  It would generate an increase in the demand for labor and create job opportunities for everyone who was willing and able to work. What is required is a shift from confiscatory taxation, which we now have, to a revenue system that is based on the value of land, which measures the value of the benefits received by landholders from society.  Land values include the surface rights, mineral rights, and all other natural opportunities like the electromagnetic spectrum used for communications.  Under this proposal, the rental value has to be paid whether the land is used or not.  While the payment of rent is a payment for a benefit received, for those who leave their land idle, it becomes a penalty, and that insures an ample supply of land for all who need or want to use it. It also insures that all workers and the owners of productive capital get to keep everything they produce by taking advantage of the natural opportunities that are equally available to everyone else.

Delaware Single Tax Platform, 1896

How does this strike you?  If this is the first thing you've read here, it may seem very odd to you. I invite you to explore the ideas involved, through the tags (below this post) and in the cloud, at left.  Comments welcome, of course!

Single Tax Platform

The single taxers of Delaware are conducting a red hot campaign. The single tax will be the issue in that state this fall, and Justice, the state single tax organ, published the following as their Single Tax Platform:

We assert as our fundamental principle, that all men are equally entitled to the use of the earth;

Therefore, No one should be permitted to hold land without paying to the community the value of the privilege thus accorded; and from the fund so raised all expenses of government should be paid. We would therefore abolish all taxation, except a tax upon the value of land exclusive of improvements. This tax should be collected by the local government and a certain proportion be paid to the state government.

This system of taxation would dispense with a horde of tax-gatherers, simplify government and greatly reduce its cost.

It would do away with the corruption and gross inequality inseparable from our present methods.

It would relieve the farmer, the workman and the manufacturer of those taxes by which they are unjustly burdened, and take for public uses those values due to the presence of population.

It would make it impossible for speculators to hold land idle, and would open unlimited opportunities for the employment of labor and capital, which is essential to the solution of the labor problem.

reprinted in The San Jose Letter, June 13, 1896

What's an intact tire and your car's alignment worth to you, per year?

How much is it worth to you to have the potholes and cracks in the roads in your town promptly filled in?  Probably roughly what it costs you to have each of your cars fixed a couple of times a year. 

So is it better for the local economy to (1) keep the tire retailers and alignment shops in business; or (2) to pay city employees or contractors to maintain the roads in a condition that minimizes damage to cars and tires?

Fans of small government might opt for the first choice.  Fans of individuals having more money to spend on discretionary purchases or to invest toward their own futures might opt for the second one.

Some things ought to be done by the community, and financed by the community.  

So how should we pay for this sort of public works?

• Should we impose sales taxes on goods sold within the town providing services?
• Should we impose a wage tax on workers within the town providing services?
• Should we tax the buildings within the town?
• Should we throw an extra tax on tobacco, alcohol, cell phone use, cable TV subscriptions, electricity use in the town?
• Should we tax all the cars and trucks garaged within the city limits?
• Should we tax the gasoline and diesel sold within the city limits?
• Or should we finance this by taxing the land value within the town limits?

If you're new to this concept, all these may make equal sense to you. (Indeed, some people argue for "balance" in taxation, or for spreading taxes across many tax bases in order to "keep rates low."  But I think there is one option that is far better than the others. 

Who benefits when we make it less expensive to live within a particular community than it would otherwise be, as we do by improving road maintenance?  Isn't it ultimately those who own land within the city limits -- the landlords (residential and commercial), the homeowners, the business community -- who benefit, both as individuals and as property owners, when people are more prone to drive in their community than in one which does not maintain its roads to the same standards?  Even those who don't own cars benefit.

Some would say that this fails to collect from the tenants -- residential tenants, commercial tenants -- who also benefit, but I'd have to disagree with that argument.  Their landlords can charge them more in the presence of such services than they could charge in the absence of that road maintenance.  Should that benefit accrue to the landlords, or should it be passed through to the community whose spending created it?

I'll return to something a Tennessee business man wrote to his governor in 1873:

"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."

The same is true of individual towns, too.   Don't tax jobs, or workers, or buildings, or equipment, or products.

This is not a reason not to raise public revenue; rather, it is a reason to think carefully about what should be taxed -- and what should not be.  Charge for that which the community's presence and activity creates, and the privilege of using that which nature or community provides in limited supply, e.g., water, electromagnetic spectrum, geosynchronous orbits, minerals, oil, natural gas; privileges like franchises for monopolies; landing rights at congested airports; on-street parking; etc.

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.  

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.