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John Farrell, The Philosophy of the Single Tax, Part IV: The Heart of the Matter

The Daily Telegraph (Sydney, NSW: 1883-1930)  Sat 9 Nov 1889  Page 10

The Philosophy of the Single Tax
by J. Farrell

No. IV   The Heart of the Matter

"The laws of distribution are obviously laws of proportion, and must be so related to each other that any two being given the third may be inferred." When it is known what the total value of a product, is, what portion of that value is taken as rent, and what as interest upon invested capital, it can readily be ascertained how much will remain to go in the shape of wages to those who engaged in the work of production. Presuming that the readers who have followed me up to this point have perfectly comprehended the differences between Henry George and the earlier teachers, and the important difference in conclusions which they must involve, I will now proceed to deal with a part of the question in which he is practically in accord with them — the law of Rent.

This, as stated by Ricardo, who more than any former writer devoted himself to the subject and who has been widely accepted as the standard authority, is as follows: — "The rent of land is determined by the excess of its produce over that which the same application of labor can secure from the least productive land in use." Here the definition of the word "land" must be borne in mind. It must be remembered that "land" means not only the surface of the earth but all natural agencies and means of production, such, for instance, as forests, mines, fisheries, &c. Rent is the advantage (expressed usually in money) which one natural avenue of production possesses over another, and can only refer to natural advantage. Rent is commonly and erroneously accepted as meaning payment for the use of buildings or improvements of any kind effected by labor or capital, but that error must be avoided. Such payment is wages or interest for the labor or capital expended in making the buildings or improvement, not rent. It must be remembered, too, that rent arises not only when the owner of land and the user of it are separate persons. If the owner and user are one and the same person, that portion of his income which he might obtain if he leased his land to a second party instead of putting it to use himself is rent. When land is purchased the purchase money — exclusive of any sum paid in consideration of improvements upon it — is simply rent capitalized. The purchaser pays in a lump sum what, if he leased the land, he would pay in rent. It must not be supposed that Ricardo's law assumed usefulness to be the basis of rent. No matter what especial advantages a piece of land possessed, rent could not attach to it while another piece, equal in every respect, was open to free use. And the expenditure of labor or capital upon such a piece of land would not in any way affect its rental. If improvements worth a million pounds stood upon it still not a single

Another Wise LTE, from 1932

A fellow named Hugo W. Noren, of Pittsburgh, wrote to the Philadelphia Inquirer, in January 1932:

To the Editor of The Inquirer:

A gentleman of your city who appears to give largely of his time to promote its welfare sends me an editorial quoting Mr. Franklin Spencer Edmonds to the effect that taxation must be stabilized and your own that taxes on real estate must be reduced.

Perhaps we shall never make any progress so long as we think of it as a tax problem.  The term "real estate," too, is confusing.  It includes land from which wealth is drawn and wealth drawn from the land.  There is no possibility of arriving at a solution if we treat land as wealth.  Land is not wealth.  It is the surface of the planet earth.  It is not produced.  No man can add an inch to it or reduce it an inch.  Wealth is produced and has no limit.  It is in our power to destroy it all or double it.

It seems necessary to grand land titles for security of possession.  But in granting such exclusive possession equity requires that an equivalent be rendered in return for the grant.  Unless such equivalent payment, called rent, is required, the possessor has an advantage over his fellows: he has a privilege.

Wherever land has a market price we know that public funds have gone astray.  Wherever public funds go astray public business must suffer.  It is no remedy to go out and punish business men, raising funds by levying penalties on production and exchange of wealth in lieu of failure to collect the public fund.

To stabilize taxes would be a guarantee to private parties a perpetual untaxed income from public funds.  Anyhow, one would hardly look for such proposal from Philadelphia, the birth place of Henry George.

To which I can only add that California's Proposition 13, which "stabilizes" the property tax, is exactly what Mr. Noren is referring to.   No wonder seniors remain in homes too large to clean, to maintain, to cool or heat, close to jobs from which they're retired and schools their children attended decades ago.  Every dollar by which their cost of living is subsidized comes out of others' pockets, in the form of higher taxes on their new neighbors, and the long commutes which younger people must endure to get from a rental they can afford or a mortgage for which they can qualify to the jobs which support themselves and their families!

Is a land value tax the solution to our housing affordability problem?

http://www.propertyobserver.com.au/housing-affordability/is-a-land-value-tax-the-solution-to-our-housing-affordability-problem

Is a land value tax the solution to our housing affordability problem?

By Catherine Cashmore |  Monday, 25 November 2013

There’s been a lot of debate around property taxation in Australia - significantly negative gearing, which allows an investor to use the short fall between interest repayments and other relevant expenditure, to lower their income tax.  

The policy promotes speculative gain meaning the strategy is only profitable if the acquisition rise in value rather than holding or falling - therefore, in Australia, investor preference is slanted toward the established sector  – the sector that attracts robust demand from all demographics and as such, in premium locations, has historically gained the greatest windfall from capital gains.  

Aside from the impact this creates in terms of affordability (pushing up the price of second-hand stock, burdening new buyers with the need to raise a higher and higher deposit just to enter ownership), it also negatively affects the the new home market, which traditionally struggles to attract consistent activity outside of targeted first home buyer incentive; albeit, the headwinds resulting from planning constraints and supply side policy should also not be dismissed.  

Additionally, capital gains tax and stamp duty have also received much debate. Both are transaction taxes, and therefore have a tendency to stagnate activity, acting as a deterrent to either buying and selling.  

Stamp duty, as modelled by economist Andrew Leigh, is shown to produce a meaningful impact on housing turnover, leading to a potential mismatch between property size and household type – a deterrent to downsizing and therefore selling.  

Additionally, it burdens first time buyers by increasing the amount they need to save in order to enter the market and frequent changes of employment concurrent with a modern day lifestyle, are hampered as owners, unwilling to move any meaningful distance outside their local neighbourhood, search for work in local areas alone.  

But, outside of academia and intermittent articles, there is scant debate in Australian mainstream media regarding land value tax and it’s practical impact.  

The theory is taken to its extreme and best advocated by American political economist and author, Henry George, who wrote his publication Progress and Poverty - an enlightened and impassioned read - and subsequently inspired the economic philosophy that came to be known as ‘Georgism.’  

The ideals of Henry George reside in the concept that land is in fixed supply, therefore we can’t all benefit from economic advantage gained from ‘ownership’ of the ‘best’ sites available without effective taxation of the resource.  

George advocated a single tax on the unimproved value of land to replace all other taxes – something that would be unlikely to hold water in current political circles. However, his ideals won favour amongst many, including the great economist and author of Capitalism and Freedom, Milton Friedman, and other influential capitalists such as Winston Churchill, who gave a powerful speech on land monopoly stressing:  

“Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public.”  

In essence, raising the percentage of tax that falls on the unimproved value of land has few distortionary or adverse affects.  It creates a steady source of revenue whilst the landowner can make their own assessment regarding the timing and type of property they wish to construct in order to make profit without being penalised for doing so.  

However, when the larger percentage of tax payable is assessed against the value of buildings and their improvements – through renovation, extension or higher density development for example – not only can those costs be transferred to a tenant, there is less motivation to make effective use of the site. This has a flow on effect which can not only exacerbate urban ‘sprawl’, but also increase the propensity to ‘land bank.’  

The Henry tax review commissioned by the government under Kevin Rudd in 2008 concluded that “economic growth would be higher if governments raised more revenue from land and less revenue from other tax bases,” proposing that stamp duty (which is an inconsistent and unequitable source of revenue) be replaced by a broad based land tax, levied on a per square metre and per land holding basis, rather than retaining present land tax arrangements.  

The Australian Housing and Urban Research Group attempted to mimic the proposed changes using their AHURI-3M micro-simulation model in a report entitled The spatial and distributional impacts of the Henry Review recommendations on stamp duty and land tax .  

And whilst it’s difficult to qualify how purchasers may factor an abolition of stamp duty into their price analysis, perhaps adding the additional saving into their borrowing capacity, and therefore not lowering prices enough to initially assist first homebuyers.  It does demonstrate how over the longer-term falls in house prices have the potential to exceed the value of land tax payments, assisting both owner-occupier and rental tenant as the effects flow through.  

Additionally, increasing the tax base would provide developers with an incentive to speed up the process and utilise their holding for more effective purposes.

And importantly for Australia, it can provide a reliable provision of revenue to channel into the development of much-needed infrastructure.  

The rational for this is coined in the old real estate term ‘location, location, location.’  Everyone understands that in areas where amenities are plentiful – containing good schools, roads, public transport, bustling shopping strips, parks, theatres, bars, street cafes and so forth – increases demand and therefore land values, invoking a vibrant sense of community which attracts business and benefits the economy.  

The idea behind spruiking a ‘hotspot’, such a common industry obsession, is based on purchasing in an area of limited supply, on the cusp of an infrastructure boom such as the provision of a new road or train line for example, enabling existing landowners to reap a windfall from capital gains and rental demand for little more effort than the advantage of getting in early and holding tight whilst tax payer dollars across the spectrum fund the work.

Should a higher LVT be implemented, the cost and maintenance of community facilities could in part, be captured from the wealth effect advantaging current owners, compensating over time for the initial outlay.  Imagine the advantage this would offer residents in fringe locations who sit and wait for the failed ‘promises’ offered, when they migrated to the outer suburbs initially. 

Take New York for example – between the years 1921 and 1931 under Governor Al Smith, New York financed what is arguably the world’s best mass transit system, colleges, parks, libraries, schools and social services shifting taxes off buildings and onto land values and channelling those dollars effectively.  

The policy influenced by Henry George ended soon after Al Smith’s administration, and eventually lead to todays landscape - a city built on a series of islands, with limited room to ‘build out’ facing a chronic affordable housing shortage with the population projected to reach 9.1 million by 2030.

More than a third of New Yorkers spend half their pay cheque on rent alone yet like London, there is little motivation for developers to build housing to accommodate low-wage workers concentrating instead on the luxury end of market, broadening the gap between rich and poor as land values rise and those priced out, find little option but to re-locate.  

New York’s Central Park is the highest generator of real estate wealth.  The most expensive homes in the world surround the park with apartments selling in excess of $20 million, and newer developments marketed in excess of $100+ million.  

Like London it’s a pure speculators paradise – in the 10 year period to 2007, values increased by 73% - owners sit on a pot of growing gold and there’s little to indicate America’s richest are about to bail out of their New York ‘addiction’ with an expansive list of A-list celebrities, high net worth individuals, and foreign magnates, owning apartments in the locality.  

New mayor-elect, Bill de Blasio, who won his seat, based on a promise to narrow the widening inequality gap - preserve 200,000 low and middle income units, and ensure 50,000 affordable homes are constructed over the next decade, will struggle to subsidize plans whist facing a deficit reputed to be as much as $2 billion in the next fiscal year.  

Yet economist Michael Hudson has recently assessed land values in New York City alone to exceed that of all of the plant and equipment in the entire country, combined.  

Currently more than 30 countries around the world have implemented land value taxation - including Australia - with varying degrees of success not only based on the percentage split between land and property, but how those funds are channelled back into the community and the quality of land assessments in regularly updating and estimating value.  

Pennsylvania is one such state in the USA to use a system which taxes land at a greater rate than improvements on property – I think I’m correct in saying 19 cities in Pennsylvania use land value tax with Altoona being the first municipality in the country to rely on land value tax alone.  

Reportedly, 85% of home owners pay less with the policy than they do with the traditional flat-rate approach. When mayor of Washington county, Anthony Spossey, who also served as treasurer from 2002 to 2006 and under his watch enacted an LVT, was interviewed on the changes in 2007, he commented:  

“LVT ..helps reduce taxes for our most vulnerable citizens. We have an aging demographic, like the county, region and the state. Taxpayers everywhere are less able to keep up with taxes, and that hurts revenue. LVT helps us mitigate the impact both to them and the city. It’s a win/win.”  

Until fairly recent times, another good example to cite is Pittsburgh. Early in the 1900s the state changed its tax system to fall greater on the unimproved value of land than its construction and improvements.  

Pittsburgh’s economic history is a study in itself, and has not been without challenges.  For those wanting to research further, I strongly advocate some of the writings of Dan Sullivan - (former chair of the Libertarian Party of Allegheny County, (Pittsburgh) Pennsylvania) - who is an expert on the economic benefits of LVT and has written extensively on the subject.  

Sullivan demonstrates that Pittsburgh not only enjoyed a construction boom whilst avoiding a real estate boom under a broad based LVT system, but also effectively weathered the great depression whilst maintaining affordable and steady land values along the way.  

In comparing it to other states struggling to recover from the recent sub-prime crisis he points out:  

“In 2008, just after the housing bubble broke, Cleveland led the nation in mortgage foreclosures per capita while Pittsburgh's foreclosure rate remained exceptionally low. Since then, the foreclosure rates in Las Vegas and many Californian cities, none of which collect significant real estate taxes, have passed Cleveland's foreclosure rate. However, on September 15, 2010, The Pittsburgh Post-Gazette reported that while at the end of the second quarter of 2010, 21.5% of America's single-family homes had underwater mortgages (the American term for negative equity), only 5.6% did in Pittsburgh. As a result Pittsburgh was top of a list of the 10 marketswith the lowest underwater mortgage figures.”

When land value tax is implemented - with the burden taken of buildings and their improvements, ensuring good quality assessments and sensible zoning laws – it not only assists affordability keeping land values stable, but also benefits local business through infrastructure funding, discourages urban sprawl, incites smart effective development of sites, reduces land banking, and as examples in the USA have demonstrated – assists in weathering the unwanted impacts of real estate booms and busts.  

Despite the numerous examples across the world where a broad based land value tax has been deployed successfully, changing policy and bringing about reform is never easy and rarely without complication.  

Additionally, the implications of a yearly tax on fixed low-income retirees must be handled with care and understanding, as there are ways to buffer unwanted effects whilst changes are implemented.  

Therefore, the process adopted in the ACT which is abolishing stamp duties over a slow transitional 20 year period to phase in higher taxation of land is not altogether unwise.  

With any change to the tax system, the headwinds come convincing the public that it’s a good idea. In this respect balanced debate and conversation is necessary, as questions and concerns are brought to the fore.  

The increased tax burden also falls on those who have significant influence across the political spectrum; therefore strong leadership to avoid lobbying from wealthy owners with vested interests is essential.  

Albeit, as I said last week, we have a new and growing generation of enlightened voters who are well and truly fed up with battling high real estate prices, inflated rents, and care not whether it’s labelled as a ‘bubble’ – but certainly care about their future and that of their children.  

Therefore – I do see a time when all the chatter around affordability, will finally evolve into real action – and a broad based LVT should form an important part of that debate.

 

---

Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.

 

The Earth-for-All Calendar: Undecimber 3 -- Seneca

How long shall we covet and oppress, enlarge our possessions and account that too little which was formerly enough for a nation? . . . A bull contents himself with one meadow, and one forest is enough for a thousand elephants; but the little body of man devours more than all other living creatures.

—Seneca, "Morals." Translation of Walter Clode, Chapter II.

Sprawl is Not a New Problem

Taxing Unoccupied and Unimproved Lands

St. Paul Pioneer Press

reprinted in The American Cooperator, circa 1904

The recent migration of thousands of American farmers to the cold and comparatively uninviting regions of western Canada has not been thru any lack of opportunity, in the more attractive regions of Minnesota and neighboring states, created by natural causes. Whatever lack of opportunity or ''room" exists, anywhere south of the boundary line, is the result of conditions wholly artificial in their origin. Chief among these is the tying up of large bodies of the best lands in the hands of speculators who are holding them for a rise. Take a trip on almost any railroad leading out of St. Paul and all along its line it will be found that the unimproved land exceeds in acreage the amount reduced to cultivation. In great numbers of instances there has been no thought of improving it by its present owners. They have bought it on speculation, and when they sell, it is an even chance that the transfer will be to some other speculator. Drive the speculator out of the field and the vacant stretches between villages will soon be occupied by farms. At present, even in the wonderfully fertile and productive region of the Red River of the North, a vast acreage is unoccupied — held on speculation.

If the Western farmers and legislators had formed a truer appreciation of the fundamental teachings of Henry George in that remarkable book, "Progress and Poverty," they would long ago have found a remedy for conditions which prevent the settlement of lands in their own neighborhoods, condemn the larger part of the fertile area in hundreds of counties to unproductive idleness, curtail the revenues of the stale, and double the burdens of the farmers who are really building up the country. That remedy is the taxation of unproductive at the same rate as productive land; the release from taxation of the farmer's house and barn and crops and cattle, and the laying of the entire tax on the land — including in the term "land" all franchises and monopolistic uses of natural opportunities, like water power, etc. If the land speculator had to pay the same tax, on every uncultivated acre, that the farmer pays on the cultivated — the amount being increased by the abolition of the personal property tax — he would soon be compelled to "sell out " at such figures as would remove all temptation for the homeseeker to travel to Canada or elsewhere in search of cheap land. That the clear, shining virtue of Mr George's proposition should have been obscured by its forced and unnecessary connection with the questions of individual land owning and "free trade" is one of the misfortunes of the century. Divested of this connection, it affords the most direct and equitable solution yet suggested for the multiform problems involved in the right adjustment of taxation.

 

One's "Fair Share"

The post below this one, "Mitt Romney's 'Fair Share' " refers to his fair share of the costs of providing public goods.

But perhaps an equally important question is the nature of one's fair share of the output of our economy and the output of the earth.  Some of the former output is the result of individual efforts, and one ought to be able to keep that portion. But at the same time we must recognize how much comes from the division of labor, from drawing down on the non-infinite supply of non-renewable natural resources on which all of us today must depend and on which future generations of human beings must rely. Those who draw down more than their legitimate share owe something to the rest of the community.  Our wealthiest tend, we suspect, to use many, many times their legitimate share, and the median American likely draws far more than their share, when one considers the planet as a whole.   

Perhaps "legitimate" is not the right word here.  It refers to what is permissible under current law.  (The word gets misused a lot -- see the discussion on "legitimate rape," which seemed to be about the circumstances under which a woman has a right to make a specific very personal, decision, and when it is considered by some to not be left to her and is the province of government, legislators or others.)

What is one's "fair share" of natural resources?  America is using a hugely disproportionate share of the world's resources.  Are we entitled to it because we're somehow "exceptional"?  Because "our" God is somehow better than other nation's Gods?   Or do we genuinely believe that all people are created equal, and intend to live our lives accordingly?

Our output of greenhouse gases exceeds our share of the world's population.  This is not without consequences for the world, and for peace on earth.

We ought to be re-examining our incentives so that they move us in the direction we ought to be going, which is, to my mind, using less.  We can build transportation infrastructure which will permit many more of us to move around with less impact on the environment.  We can fund that through collecting the increases in land value that infrastructure creates.  We can correct the incentives which cause us to use today's inferior technologies to extract natural resources from the earth in ways which damage the environment, as if ours was the final generation, or the only one worth serious consideration.

Better incentives could reduce, eliminate, even reverse urban sprawl.  I refer specifically to land value taxation as a replacement for the existing property tax, particularly in places where assessments are for one reason or another not consistent with current property values -- e.g., California and Florida, parts of Delaware and Pennsylvania which currently use assessments from the 1970s, and many other places where assessments are simply out of whack with current reality!)  We should be replacing sales taxes, wage taxes, building taxes with taxes on land value and on natural resources.  Most of that value is flowing generously into private or corporate pockets, to our detriment.  It concentrates wealth, income, and, of course, political power. 

Collecting the rent, instead of leaving the lion's share of it to be pocketed by the rent-seekers, would go a long way to making our society and our economy healthier.  Eliminating the privilege of privatizing that which in a wisely designed society would be our common treasure would make our society a better place in which to live, a place in which all could thrive and prosper without victimizing their fellow human beings. 

The Earth-for-All Calendar: August 2 -- Royal Commission on the Housing of the Working Classes

If this land (i.e., "land available for building in the neighborhood of our populous cities"), were rated at, say, 4% on its selling value, . . . the owners of the building land would be forced to offer their land for sale, and thus their competition with one another would bring down the price of building land, and so diminish the tax in the shape of ground-rent or price paid for land, which is now levied on urban enterprise by the adjacent land-owners, a tax, be it remembered, which is no recompense for any industry or expenditure on their part, but is the natural result of the industry and activity of the townspeople themselves.

— First Report of the Royal Commission on the Housing of the Working Classes (1885), p. 42.

High Rent as the Best Manure

"High rent is the best manure ever land got."

This quote is attributed to the Irish landlords, in an 1835 piece by Thomas Ainge Devyr entitled "Natural Rights: A Pamphlet for the People."

The statement bears thinking about: when private landlords collect high rents, they force their tenants to work quite hard -- keep in mind that they still have to pay taxes on various things in order to support local spending -- while the landlord has provided them NOTHING that he has made (and nothing he has bought from the fellow who made it, either).

But at the same time, it is worth considering what happens when the community collects reasonably high rents on the land, particularly urban land.  When the community collects high rent, there are no vacant lots.  There are relatively few underused lots.  There is housing for all who want it.  All this economic activity creates jobs -- for those who would design, those who would build, those who would maintain, those who would improve, those who would expand, those who would protect.  All those workers' needs and spending create more jobs.  Wages rise, as jobs chase workers.  

So the phrase is not simply an 18th century rural one, but highly relevant in 21st century U.S. cities, towns and rural areas.  When the community collects the land rent and recycles it to serve local needs -- schools, parks, well-maintained roads, public transportation systems, police, ambulance, fire protection, courts -- communities become good places to live.  When we permit private landlords (be they individual or corporate, universities or trusts) to pocket those funds -- and perhaps "invest" the excess in acquiring more land on which to pocket the rent, those good things, if they happen at all, must be financed by high taxes on productive activity.

One is a virtuous circle; the other a vicious one.  Which one is consistent with our ideals?  If Life, Liberty and the Pursuit of Happiness are for ALL of us, then I think we have to opt for the virtuous circle.

 

The Land Questions: #40: promoting urban housing for all who want it

40. Studies have confirmed the common wisdom that people who live in cities do more walking than those who live in suburban and rural areas, and tend to be in better shape.   What economic policies might help promote the kind of density that will encourage the development of affordable housing -- for people all across the income spectrum -- near the centers of activity?

A. Land value taxation, which will cause urban landholders to put their underused land to better use, replacing vacant lots and obsolete buildings with taller modern buildings, approaching the highest and best use for that land.

B. Land value taxation, which will capture the increases in value that are the result of public investment in new transportation systems: subway stops, bus stops, etc., instead of leaving it to raise the selling price of sites served.

C. Land value taxation, which produces the kind of density that makes public transportation systems feasible.

D. Land value taxation, which will allow people who would like to live closer to their work to afford housing there

E. LVT, which will bring down the selling price of land -- without reducing its value at all -- to make it appealing to developers who can put it to use

F. LVT, which will allow people to afford housing with smaller and shorter mortgages to live where they want to live.

G. Your suggestions?

The Land Questions: #20 Affordable Housing

20. What is the best way to insure that affordable housing -- for people of all ages and stages, all income levels -- is available, both for ownership and for rental, both near the center of activities and, if needed after the desire for housing near the center of activities is satisfied, on the fringes?

A. Lotteries

B. Community Land Trusts

C. Affordable Housing Regulations that require that for every 10 new condos built, 1 must be affordable to people earning less than the local median household income

D. Rent control

E. Shame

F. Fundraisers

G. Habitat for Humanity

H. Relaxed mortgage lending rules and more private mortgage insurance

I. Land value taxation, to encourage the redevelopment of underused sites near the center of things

J. Your suggestions?

How to Bring The Cost of Housing Back within Reach of All American Families (1978)

How to Bring The Cost of Housing Back within Reach of All American Families
C. Lowell Harriss, et al.
[A pamphlet published by the Robert Schalkenbach Foundation, 1978]

Introduction
by Dr. C. Lowell Harriss, Professor of Economics, Columbia University

1. Land Supply Constraints in the United States
Excerpt from the Final Report of the Task Force on Housing Costs, William J. White, Chairman

2. The High Price of Land
by P. I. Prentice, Chairman, National Council for Property Tax Reform

3. Modernize, Don't Abolish, the Property Tax
From a report by the Subcommittee on the City of the House Committee on Banking, Finance, and Urban Affairs of the U. S. House of Representatives, Rep. Henry S. Reuss, Wisconsin, Chairman
 

Introduction
by Dr. C. Lowell Harriss

The number of Americans who lack adequate housing is much too high.  While both opportunity and promise life in the long-established principle of providing satisfactory shelter for everyone, many are still not well housed.  Population grows, and the existing stock of housing grows older.  For years to come, much new construction, expansion, and modernization will be needed.

Rapidly rising costs, however, present formidable obstacles.  One of the heaviest costs is one which also rises most rapidly.  And it is the cost of something created not by sweat and thrift, but by nature.

It is land.

The rising prices paid for land itself must be distinguished from the portion of the price of a building site which represents cost of preparation for use.  The land elements alone go up and up in price.  But land price increases do not change the quantity of land in existence.  Here is a rising price which does not add to supply.

Land is different.

In these three articles on land value taxation, the first, "Land Supply Constraints in the United States," points out that the sharp rises in land prices result in part from man-made factors.  Arbitrary, artificial, and unconstructive restrictions on land supply boost prices and threaten our housing future.  New building will therefore be kept below levels which unfettered economic conditions would otherwise achieve.  But tax policy which would encourage use, rather than underuse and withholding of land can increase the effective supply.  Need more be said?

Yes.  And in the second selection, "The High Price of Land," Mr. Prentice says more.  He points to many avenues by which the harmful effects of restricted land supply spread through the economy.  Developers and builders, laborers, supplier, subcontractors, and others all suffer.  They have less work, operate under conditions of disadvantage, and receive poorer rewards because of essentially needless obstructions to the optimum use of land.  The full and true price of land includes burdens above and beyond the dollar prices of building lots.  We shoulder burdens of lost opportunity of many kinds.  They are largely hidden but indeed real.  The quality of too much new construction deteriorates instead of improving as an advancing society should expect.  And, to repeat, the tragedy is that the rising prices for land do not create an more surface on the earth.

What to do?  The third article, "Modernize, Don't Abolish, The Property Tax," points to the reform outlined generations ago but here presented in modern form: reduce the property tax burdens on structures and make up the revenue by higher tax rates on land value.

The benefits from relying more fully on taxation of land values, rather than taxation of buildings, would include greater pressure on landowners to put land to better use.  Withholding land -- which reduces the current effective supply -- would become more costly if land value taxes were higher.  Thus some land formerly held for speculation would be sold, and new building would be encouraged on the increased supply of land.

A careful study of probable results in Washington, D. C., showed, among other things, that taxes on present homeowners would generally fall.  But this result is not the one which most justifies support for reform.  More significant and constructive would be a combination of forces producing incentives for better land use.  Upgrading of housing in older urban centers would be expected.  Positive incentives at many points would contribute to improving America's housing.

read the rest of the pamphlet:

A Statement of Beliefs, and Purposes of the Movement

Another goody from my grandparents' files.  I searched for a version of this online, and, finding none, have transcribed it because I thought it good.

I BELIEVE:

• that the problems of poverty, hunger, illness and illiteracy have reached such proportions that they can no longer be neglected, and that they demand immediate, vigorous and adequate solutions;

• that the rising levels of joblessness and homelessness can only be reduced through systematic adjustments that foster reversal of the widening economic gap between rich and poor;

• that an adequate level of economic and social well-being must become more widespread if the political freedoms essential for a peaceful world are to be achieved and maintained;

• that this requires that access to the wealth of the land, the oceans and other natural resources be made available to all on a basis of fairness and equity;

• that the essential pre-requisite to solving these problems with justice for all is to relieve labor, industry and consumers of the onerous taxes they now bear;

• and that this can best be done by raising revenue for public purposes from those values that are created by the public itself, namely, the economic values of land and other natural resources, which now flow as unearned income to those corporations and individuals who happen to hold title to them.

 

PURPOSES OF THE MOVEMENT

1. To fund public services from publicly-created land-value revenues, instead of from privately-created wealth, such as homes and other man-made structures;
2. To stimulate the general economy by lessening the need for income, sales and other kinds of taxes;
3. To encourage private construction of low-cost housing, industrial plants and other needed facilities by reducing taxes usually levied against buildings of all kinds;
4. To encourage proper maintenance of all structures by reducing the tax "penalty" usually incurred whenever major repairs or improvements are made;
5. To discourage land speculation, which drives up both land prices and rents, resulting in increased levels of tenancy and homelessness;
6. To reduce urban sprawl and the mounting pressures to convert nearby agricultural land to residential, commercial and industrial uses;
7. To strengthen political freedom by enabling more people to share in the economic and social benefits of owning one's own home and/or workplace; and
8. To reduce the risk of global war by promoting a widely-recognized remedy for a primary cause of conflict within and between nations.

Land Speculation, and How to Stop It

I found this article in my grandparents' files.  It comes from about 1962.  Still seems timely.

Land Speculation, and How to Stop It

Too much valuable land in this country is tied up by speculators who merely sit on it and wait for an easy profit. This is economically unhealthy, nonproductive - and readily cured.

A Springboard for Discussion
An editorial review by Wolfgang Langewiesche

The home building industry faces a crisis: in many areas it can no longer buy land at a price that makes building profitable. This is the conclusion of House & Home, in a special issue on which this article is based. House & Home, a Time Inc. publication, has examined the problem of land prices in terms of the housing industry, but it is a problem that touches every one of us, whether we rent or own or want to own. As the magazine points out, "A cutback in homebuilding throws more men out of work than a like cutback in autos, or steel, or oil."

Here are the key reasons behind high land prices, plus an examination of the radical remedy which House & Home proposes.

ON LONG ISLAND, builders are paying $16,000 and more for raw acreage they could have bought for $3500 in 1950. In San Francisco a builder paid $580,000 for a tract that was offered for $15,000 in 1948. North of Albuquerque a builder paid almost $1000 an acre for land that sold 10 years ago for $4 an acre. Since 1950, while building-material prices have climbed 21% and wages 68%, land prices have risen 100% in many areas, as much as 4000% in others!

These figures might give the impression that we are running out of land. But there is plenty of vacant and under-used land left close to our cities, even inside them. It is merely being held out of use, or kept in under-use, by speculators who are holding out for absurd prices.

For example: in 1961 only about 40% of the "suitable" land in the 22 counties of the New York metropolitan area was developed for "urban" use. The 6,500,000 people of greater Chicago use only one sixth of the land within the metropolitan boundaries. In Indianapolis, a special study by House & Home inside the city limits showed nearly seven square miles of level land, zoned for homes -- unused! Right around the city (well inside the present far-sprawling suburbia) are some 125 square miles suitable for housing -- enough, at the present growth rate, to accommodate the needs of Indianapolis for the next 35 years!

Operation Leapfrog. So the land is there. But speculators have it, and are holding out on us. The result is that developers have to leapfrog the closer-in, too-expensive land, and go well out in the country to find land cheap enough to build on. Then prices rise there, and further development has to leapfrog again and go still farther out. The result: suburban sprawl; millions of miles of wasted driving, at eight cents a mile, between home and work; extra highways at $500,000 a mile.

Speculation by the "investors" who buy 20 acres or 2000 acres outside of town and won't sell until they can triple their money, takes land out of the market. And when it is finally sold, much still has to be done to get it ready for building roads, schools, zoning, sewers, etc. -- and it takes years. This further strengthens the impression that land is scarce.

Room to Grow. But the land is there, and cities don't have to sprawl. Suppose, House & Home points out, you have a built-up city, more or less round, with the outskirts eight miles from the center. Suppose now you extend streets, bus lines, water and sewers outward by one mile -- putting the outskirts nine miles from the center. Well, in that one-mile addition all around, there will be space for 400,000 people in single houses at four families per acre. So why go 30 miles out?

Cities could even grow inward. There is lots of space downtown and right around it; we don't see it because much of it is covered by old buildings -- low-cost buildings known as "taxpayers": warehouses, decrepit factories and slums. In downtown Fort Worth the underused or derelict land had space for: a belt highway; parking garages for 60,000 cars; a 300% increase in office space; a new civic center; a convention hall-all that, and "green belts" too!

House & Home says that the land now being held speculatively far exceeds any possible demand for building land for generations to come. A lot of speculators are going to be left out in the cold! But, meanwhile, some of the blocked-out land is very much in our way.

Tax the Land. And how can we pry this land loose? House & Home says: Tax it loose.

It's not how much we tax, but how we tax. Most cities now tax land and buildings at the same rate. This is wrong. We should tax the land more heavily, the "improvements" more lightly or not at all.

The average homeowner might even be better off. He would save on house tax what he'd pay extra in land tax. The town treasury would come out even: the total tax take would be the same. But the system would radically change the climate in which our cities grow and sprawl.

The way it is now, it costs almost nothing to hold land as speculation. Taxes on it are low. As a matter of fact, a lot is usually assessed lower while vacant than the same lot is after it has a building on it! If land were heavily taxed and buildings lightly taxed, the owner of vacant land would find it less attractive to hold onto. Taxes year-by-year would eat too much of the profit he hopes for in the end; and taxes would be sure, the profits not. So he would be far more likely to put his land on the market, and at a price at which it would move.

Or perhaps he would use the vacant lot himself. For instance, instead of renting it out as a parking lot, he might build a ten-story parking-garage on it. He would not be penalized for building it by having to pay more tax; we would have ten times as much parking space!

Do Nothing. To make such taxation by cities effective, some federal tax regulations would also have to change. If you just own land and finally sell it, your profits are capital gains, taxed low. But if you do anything to your land, such as subdividing, building roads -- then your profits are "income" and are taxed twice as high or even higher. So, the smart man will sit on land like a bump on a log. And the only one who can afford to buy it from him is a rich man who will do the same!

The very idea of taxing "improvements" is a paradox -- just to say it slowly makes you stop and think. It's strange. That stern old Uncle in Washington seems to favor speculation, idleness and waste, and to penalize enterprise and creativity. Local real-estate taxes are deductible for federal income-tax purposes. This means the rich land speculator in the 75% income-tax bracket can deduct 75% of his land tax from his income tax.

Taxing the land, un-taxing the building, would also clear slums, House & Home claims. Slums are largely tax-made. The ratty old buildings are taxed low; so is the high-value land underneath. The "slumlord" is best off by leaving his slum a slum. Even if he merely did decent maintenance, his taxes would go up! Anyway, his real objective is to sell the underlying land someday at a big, low-taxed capital gain. In the end, because the rundown downtown neighborhood doesn't "renew" itself, it is bought up for "urban renewal" by the federal government, then resold to "re-developers" at about one third the cost. We taxpayers get hit for the difference.

The Power to Build. If land were more heavily taxed and buildings more lightly, the slumlord's situation would be reversed. He would no longer get a tax break from his ratty buildings; all buildings, ratty or not, would be tax-cheap. He would no longer find it tax-cheap to hold his high-value land for future gains; he would have to sell, to someone who would put up good buildings. Thus, by taxing land we could actually tax slums out of existence! The power to tax could be the power to build.

The idea is old. It has been tried and found to work. Pittsburgh taxes land value at twice the rate of building value. Pittsburgh is the example of an American city that has revitalized itself, especially downtown. In Brisbane, Australia, buildings are tax-free, while land value is taxed up to 10% per year. That's enough to make it unattractive to hold land you are not using; it keeps land available and keeps land prices down. There are no slums as we know them. In Denmark, increases in land value are taxed so high that they are practically confiscated. You can't make money by land speculation in Denmark, so you don't try.

House & Home does not mention the most successful use of the land-value tax. This is in California, in connection with irrigation; it started about 1880, but it's still going. An irrigation district is formed; and a stiff tax (used to finance the building of dams and canals and bring water) is laid upon all land in the district, while buildings and crops are totally exempt.

This tax broke a speculative blockage much like the one that now troubles our cities. Before the tax, it had been more profitable to hold irrigable land as speculation than to irrigate it and grow crops. The land was held in big blocs, and farmers could not find farm-size parcels to buy at prices that made economic sense. There was water, and there was land; the two did not get together!

Then came the land-value tax. The tax made it expensive to hold irrigable land idle, or to under-use it it as cattle range. Farmland appeared on the market, in small acreages, at economic prices. Farmers came, water started to flow and crops grew. The whole of California's immense irrigation agriculture stems from this one application of the land tax.

A LONG TIME ago, House & Home notes, young Winston Churchill put the case for the land tax succinctly. In a thundering speech he made in 1909 in Edinburgh, when he was president of the Board of Trade, he described "the landlord who happens to own a lot of land on the outskirts of a big city, who watches the busy population around him making the city larger, richer, more convenient every day, and all the while he sits still and does nothing. Roads are made, services are improved, electric light turns night into day, water is brought from reservoirs hundreds of miles off in the mountains-and all the while the landlord sits still. While the land is what is called 'ripening,' the artisan going to his work must detour or pay a fare to avoid it" -- just our present trouble.

Finally, the land having risen 20 or 50 times in value, Churchill's landlord sells. What is the moral difference, Churchill asked, between the land speculator's activities and those of the man who buys and sells, for instance, old masters?

Churchill: "Pictures do not get in anybody's way."

You can read the Churchill speech here.

Thinking about taxes and jobs

AN IMPORTANT DIFFERENCE

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

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

 

adapted from Tax Facts, January, 1928.

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

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

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

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

Sharing the burden of the cost of providing public services

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

A SURE THING

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

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

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

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

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

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

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

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

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

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

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

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

James Love's paragraph summary of Progress and Poverty

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

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

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

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

FIRE Sector Strikes Again: Resale Fees That Only Developers Could Love

Resale Fees That Only Developers Could Love - NYTimes.com.

What a story!  The developers of some subdivisions have slipped into their covenants a 1% resale "commission" which anyone who sells a property they developed must pay them ... not just once, but at every transaction for 99 years!    How's that for a tax imposed by the private sector?   Here are some excerpts from the article.

"But four months later, when a local television reporter was doing a story on housing taxes in their subdivision, the Dupaixs discovered that their sales contract included a “resale fee” that allows the developer to collect 1 percent of the sales price from the seller every time the property changes hands — for the next 99 years. ....

A growing number of developers and builders have been quietly slipping “resale fee” covenants into sales agreements of newly built homes in some subdivisions. In the Dupaix contract, the clause was in a separate 13-page document — called the declaration of covenants, conditions and restrictions — that wasn’t even included in the closing papers and did not require a signature.

The fee, sometimes called a capital recovery fee or private transfer fee, has been gaining popularity among companies that have been frantically searching for new ways to gain access to cash in the depressed housing market. ...

Freehold Capital Partners, a real estate financing firm founded by the Texas developer Joseph B. Alderman III, has been leading the charge. According to William White, Freehold’s chief operating officer, the firm has signed up more than 5,000 developers who are adding the covenant to developments worth hundreds of billions of dollars that will be built out over the next decade in 43 states.

Many developers see the resale fee as a creative way to get new financing. They are hoping to one day use the trickle of cash from these fees as collateral for a loan, or to get cash up front if pools of the fees are packaged into securities to be bought and sold on Wall Street. Freehold has begun shopping the idea of securitizing the resale fees, much as subprime loans were packaged and sold to investors.

Someone selling a home for $500,000, for example, would have to pay the original developer $5,000. If the home sold again two years later for $750,000, the second seller would have to pony up $7,500 to the developer, and so on. Even if a home declines in value, the seller still must pay the 1 percent fee. Freehold gets a cut of the resale fee; if the fees are securitized, it retains a percentage of the cash generated from the securitization.

Freehold’s principals and lawyers have been aggressive in sales pitches to developers, but have declined to give details on their clients, securitization efforts or the company itself. Freehold moved its corporate office from Round Rock, Tex., to New York this year as it stepped up efforts to securitize the resale fees.

Mr. White characterizes the resale fee as a win-win deal for the developer and the home buyer. The fees let developers spread out the cost of building the roads, utilities and other infrastructure across all homeowners in a subdivision, rather than just the initial buyers. As a result, he said, the developer can lower the initial price of a home to the first buyer.

For example, he says, a typical $250,000 home may be able to sell for about $5,000 less. “The fee is a fair and equitable way to spread development costs, and results in lower costs to the average consumer,” Mr. White says. ...

Jeff Moseley, founder of Badger Creek Development in Brunswick, Ga., says he signed up with Freehold after watching his business tank with the economy. “I can’t sleep at night,” he says, adding that he had laid off all 32 of his employees.

He is hoping Freehold’s resale fee program will breathe new life into his business. “I thought it was an intriguing and compelling story,” says Mr. Moseley, who owns two development projects, encompassing about 220 lots.

Under his deal with Freehold, he will get about two-thirds of the revenue from the securitized fees while Freehold and other parties will get one-third. ...

A COALITION of real estate trade groups, including the National Association of Realtors, the American Land Title Association and the Center for Responsible Lending, opposes resale fees and is lobbying federal and state authorities to ban them.

“The idea that someone who has no ownership stake or interest can continue to collect revenue off of a property that they may have built up to 99 years ago exploits an already complex transaction and doesn’t pass the smell test,” says Justin Ailes, director of government affairs at the land title association. The fee could hurt real estate values in the future if buyers are reluctant to purchase properties that have a 1 percent fee attached. ...

The Federal Housing Finance Agency is considering a proposal to prohibit the transfer fees on all mortgages financed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. And 17 states have either banned or placed conditions on the practice.

Some bankers say Freehold will have a tough time selling the idea to Wall Street. The uncertain economy and housing market have made it next to impossible to predict when and how often a home will sell, or where home prices are headed — information that is needed to estimate cash flows to value the securities.

And some worry that an all-out ban of resale fees by states or the federal government could make the securitized paper worthless.

Dave Ledford, a senior vice president at the National Association of Home Builders, says he’s not sure Freehold can deliver on its big promises. “It’s almost in the category of ‘too good to be true,’ ” Mr. Ledford says.

Mr. White dismisses the criticism as sour grapes. He contends that Realtors oppose the fee because homebuyers might pressure them to lower their commissions to offset it. “Apparently 6 percent to a Realtor is justified, yet 1 percent to pay for roads and utilities isn’t,” Mr. White says. He says he believes title companies are worried that they might face legal claims if they miss the fee during a search.

 

LVTfan here: 1% to pay in 2050 or 2090 for roads built in 2010?   Right ....  Tell us another one.

See also http://www.wealthandwant.com/docs/Gross_Rent.html  Rent-seeking is alive and well -- and these folks are reaping what they didn't sow -- and won't sow.   It doesn't come out of thin air.  It will come out of the pockets of future owners and users of the property.

Shouldn't we-the-people -- the public sector -- get that benefit?

This seems a bit like the Baltimore land rent story: private parties getting to collect value today, in return for someone paying a bit less 50 or 100 years ago to buy a house. 

And both situations ignore what those who have read Henry George know: that land rent ought to be used by the commons to finance our common spending, not privatized by any individual or corporate entity.

Little people pay the taxes ... and we're paying to the wrong parties.  When private entities get to collect what we-the-people create, there's something badly wrong with the structure.  It forces us to rely on sales taxes, wage taxes, building taxes, and other taxes which burden the economy and steal from those who produce in order to enrich those who speculate in land value.

Wise states will implement the legislation necessary to wipe out such structures.

Obama to Call for $50 Billion Public Works Plan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are the opening paragraphs:

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

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

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

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

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

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

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

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

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

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

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

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

Not too much to ask for, is it?

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

Which side are YOU on? 

America's Biggest Jobs Program -- The U.S. Military | TPMCafe

America's Biggest Jobs Program -- The U.S. Military | TPMCafe.

America's biggest -- and only major -- jobs program is the U.S. military.

Over 1,400,000 Americans are now on active duty; another 833,000 are in the reserves, many full time. Another 1,600,000 Americans work in companies that supply the military with everything from weapons to utensils. (I'm not even including all the foreign contractors employing non-US citizens.)

If we didn't have this giant military jobs program, the U.S. unemployment rate would be over 11.5 percent today instead of 9.5 percent.

And without our military jobs program personal incomes would be dropping faster. The Commerce Department reported Monday the only major metro areas where both net earnings and personal incomes rose last year were San Antonio, Texas, Virginia Beach, Virginia, and Washington, D.C. -- because all three have high concentrations of military and federal jobs.

This isn't an argument for more military spending. Just the opposite. Having a giant undercover military jobs program is an insane way to keep Americans employed. It creates jobs we don't need but we keep anyway because there's no honest alternative. We don't have an overt jobs program based on what's really needed.  . . .

The Pentagon's budget -- and its giant undercover jobs program -- keeps expanding. The President has asked Congress to hike total defense spending next year 2.2 percent, to $708 billion. That's 6.1 percent higher than peak defense spending during the Bush administration.

This sum doesn't even include Homeland Security, Veterans Affairs, nuclear weapons management, and intelligence. Add these, and next year's national security budget totals about $950 billion.

That's a major chunk of the entire federal budget. But most deficit hawks don't dare cut it. National security is sacrosanct.

Yet what's really sacrosanct is the giant jobs program that's justified by national security. National security is a cover for job security.

This is nuts.

Wouldn't it be better to have a jobs program that created things we really need -- like light-rail trains, better school facilities, public parks, water and sewer systems, and non-carbon energy sources -- than things we don't, like obsolete weapons systems?

Historically some of America's biggest jobs programs that were critical to the nation's future have been justified by national defense, although they've borne almost no relation to it. The National Defense Education Act of the late 1950s trained a generation of math and science teachers. The National Defense Highway Act created millions of construction jobs turning the nation's two-lane highways into four- and six-lane Interstates.

Maybe this is the way to convince Republicans and blue-dog Democrats to spend more federal dollars putting Americans back, and working on things we genuinely need: Call it the National Defense Full Employment Act.

Suppose, just suppose, that we shifted our federal spending to create those things we really need -- nation building, if you will --  like light-rail trains, better school facilities, public parks, water and sewer systems, and non-carbon energy sources  -- but instead of letting the land value that such investment creates be privatized by whoever owns the land they serve, we collected the value WE created, and used it to fund next year's investment in public goods and services?

Sounds like a virtuous circle to me.

And one which we could recommend to the voters in resource-rich countries.

And collecting that value would have a lot of other highly desirable effects, including reversing urban and suburban sprawl, reducing the price of housing, increasing wages, reducing the concentrations of wealth and income, stabilizing our economy.   Pick one of those that you don't think would be good for America.

And it isn't pork if it creates value which is then recycled for public purposes.  It is pork when we permit it to be privatized

The End of Poverty? Think Again!

"For decades, poverty reduction and development programs have failed to confront the different forms of power and the structural violence that hold more than two-thirds of the world in dire straits.  Our chosen economic model has created a global situation in which today less than 25% of the world's population uses more than 80% of the planet's resources while creating 70% of its pollution."

That's from the recent documentary "The End of Poverty? Think Again" (available at Amazon, Netflix and some Redbox locations).

So how do we reduce our demand for non-renewable natural resources?  (I don't see much long-term upside in increasing the supply of energy by using more of our soil -- or water or fuel -- to provide biofuel, though it may be a boon in dealing with the supply problem short-term.)

The right question, I submit, is how we do we adjust our incentives to produce a reduction in demand for oil, coal, natural gas, so as to leave a decent quantity of each for all the future generations and for the people of other nations.  (And, not so incidently, to reduce the pollution we produce which now shows signs of exceeding the ecosystem's ability to carry it.)

What is it that we do now that we can do differently?

Well, we can adopt measures that encourage people to

• live closer to their work
• use public transportation more
• use cars less
• live in modern homes constructed with energy-conserving technologies and design

We can adopt measures which make it affordable to live closer to their work -- if they choose that.  I'm not talking about subsidies, incidently.  More precisely, I'm not talking about adding subsidies. 

Some will say, as George H. W. Bush did in 1992 at the Earth Summit, that "The American way of life is not negotiable."  

Dick Cheney is quoted (May, 2001) as saying that "Conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy."   As irritating as I found most of his pronouncements to be, I can see a germ of truth in this one.

I have friends who seek to reduce their water usage in order to save the environment.  They save the water in which they wash vegetables, and measure their use by the cupful.  It seems to me that while their efforts are admirable, in the absence of changes to the incentives which permit some people or other entities to continue to use water heedlessly to water lawns and rinse driveways, their efforts are pointless and maybe even counterproductive.  (Problem? What problem? Why do we large users need to change our ways?)  WE HAVE TO CORRECT THE INCENTIVES!

It seems to me that a carbon tax is a step in the right direction.  Establish it, announce it, implement it on some predictable schedule.  Industry will adjust.  Individuals will adjust.     And make sure that carbon tax applies to energy used in global commerce and travel, as well as domestically.

But the single reform which I think will make the biggest difference is a tax shift.  If we were to shift our taxes off buildings, and onto land value, here's what we could expect to happen:

• Urban land which now sits vacant or underused would be put to something approaching its highest and best use.  That might be more housing, or more commercial venues, or some combination thereof.
• Developers of well-located land would be competing with each other to provide what the market wants, be it housing or more grocery stores or more shops, or more office space.  Landlords competing for tenants would lower their asking rents and tune their offerings to meet the demand, at all levels on the income spectrum, not just the high end.
• The density this redevelopment would create would provide the platform for better public transportation -- more frequent buses, more subways, more commuter options.
• People who would prefer to live closer to their work or to the cultural or other amenities which larger cities can offer would be able to find housing they can afford.  Those who want to live in the suburbs on the 1-acre lot with the picket fence would have less competition for such homes, and be able to afford to buy one closer to the center of things for less of their income or a shorter mortgage.

I attend a liberal suburban church where every week the Prayers of the People include this statement:  "The world now has the means to end extreme poverty.  We pray that we have the will."  

We need to act locally -- through basic tax reform -- to shift the incentives which currently nudge us toward using cars more, polluting more, living in older houses which consume more energy and create more pollution -- and rewarding land speculators more than we encourage the sorts of entrepreneurs who create jobs.

IT is ALL INTER-RELATED.  But relatively few of us see the connectedness yet.  

Aging in Place

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

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

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

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

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

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

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

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

Wealth Concentration, Income Concentration and the Economy

I came across an interesting paragraph in the January, 1887, issue of The Democrat, a British publication, which speaks to our 21st century economy:

The Rothschilds all over Europe are calculated to possess a yearly income of at least six millions. Suppose they spend only one million, laying aside five, what does this really mean? It means that they demand from the producers a tribute of six millions a year, not in goods, but in money; to raise this tribute-money, the producers have to sell six million pounds' worth of their productions in a market in which the Rothschilds purchase only one million's worth, having no requirements for more goods, their spending capacity, viz., their demand: for necessities and luxuries, not having increased so fast as their income. The producers — the people at large — cannot fill the gap by purchasing these remaining five million pounds' worth of goods, much as they need them, because they have to pay the proceeds of their labour as a tribute to the Rothschilds to the tune of £6,000,000 a year. Here, then, is the solution of the great problem, why goods are not saleable, why labour can find no employment, though the greatest need for goods exists.

It is attributed to Michael Flurscheim, a manufacturer in the Grand Duchy of Baden.

America's FIRE sector -- Finance, Insurance, Real Estate -- continues to harvest huge amounts of the production of American workers who are fussy enough to want a place to live.  They don't have sufficient cash to buy the land and structure outright, and 15-year mortgages have given way to 30-year mortgages, fixed rates to adjustable rates, 20% downpayments to 10% and 5% and less -- with private mortgage insurance -- and $8,000 tax credits often are the equity in a newly purchased home.    And the top few hundred employees of each behemoth pay themselves and each other awesomely high bonuses, on top of salaries which would alone place them in the top 1% of our income spectrum.  Our best and brightest students are drawn, not to medicine, or scientific research, or engineering, or production management, or any of a number of fields in which they could make a positive impact on the lives of their fellow human beings (and be comfortably compensated with opportunities for leaving their children well-situated as well), but into Finance and Consulting, where the goal is to suck the vitality out of productive companies and out of wage-earning individuals. 

The alternative?  It is remarkably simple.  So simple that "smart" people scoff at it.  It is also wise, and just, and efficient, and conducive to solving many of our most pressing -- and supposedly intractable -- social, economic, environmental and justice problems.

For India’s Newly Rich Farmers, Limos Won’t Do

For India’s Newly Rich Farmers, Limos Won’t Do - NYTimes.com.

The Yadavs are members of a new economic caste in India: nouveau riche farmers. Land acquisition for expanding cities and industry is one of the most bitterly contentious issues in India, rife with corruption and violent protests. Yet in some areas it has created pockets of overnight wealth, especially in the outlying regions of the capital, New Delhi.

By Western standards, few of these farmers are truly rich. But in India, where the annual per capita income is about $1,000 and where roughly 800 million people live on less than $2 a day, some farmers have gotten windfalls of several million rupees by selling land. Over the years, farmers and others have sold more than 50,000 acres of farmland as Noida has evolved into a suburb of 300,000 people with shopping malls and office parks.

That has created what might seem to be a pleasant predicament: What to do with the cash? Some farmers have bought more land, banked money, invested in their children’s educations or made improvements to their homes. In Punjab, a few farmers told the Indian news media they wanted to use their land riches to move to Canada. But still others are broke after indulging in spending sprees for cars, holiday trips and other luxuries.

 ... On the morning of his son’s wedding, Mr. Yadav sat in the shabby brick courtyard of his village home, finalizing the last details of a ceremony that seemed to straddle different centuries. He had earned about $109,000 selling three acres of his ancestral land. He banked some of the money, renovated his house, bought a small Hyundai and purchased three more acres farther out to continue farming.

Did that money come out of thin air?   It seems odd to call what he did "earning."  Traditional, perhaps ... but it seems to me to bear some relationship to the Emperor's new clothing: a child can see what adults may choose not to see.

Landsellers' windfalls do not come out of thin air.  Each represents many years' worth of people's labor.   How much does Mr. Yadav make each year by working?  Does it seem logical, or just, or rational, to permit some of us to collect a windfall from the value of something we all created together and they had no more part in creating than any of the rest of us?

Reading Lowell Harriss

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

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

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

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

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

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

Lowell went on to say,

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

He continued,

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

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

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

He continues,

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

He concludes,

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

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

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

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

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

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

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

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

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

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

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

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

He describes this as a "burdensomeless" tax:

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

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

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

And

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

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

And just before he concludes, he writes,

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

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

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

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

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

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

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

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

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

Children in Poverty, Children in low-income families

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Krugman: How Did Economists Get It So Wrong?

Paul Krugman's article, in this Sunday's NYT Magazine -- is How Did Economists Get It So Wrong?

Well, perhaps the answer to Professor Krugman's question is that very few of the current crop of economists -- saltwater or freshwater (read the article!) -- ever were guided into reading the work of one of the foremost writers on political economy.  

And perhaps the few who did read it were too embarrassed to challenge their brethren.

But even a look at the textbooks from which most of the college and university economics professors teach their students would demonstrate that Henry George got it right, and that his ideas, while eclipsed by economists who know where their own bread is buttered, and which ideas they ought not to embrace while seeking tenure (during which they forget the little they ever did learn about this wise man's thought and observations) still shine and still explain what we see around us better than the neoclassical economists who are embraced by most teaching and government economists and economics pundits.

I commend to their attention Henry George's books, all of which are available online and all of which can be purchased in hardcopy from http://www.schalkenbach.org/:

• Progress and Poverty -- the best sellling book on political economy* ever -- modern thought-by-thought updating, abridged, is at http://www.progressandpoverty.org/ and http://www.hgchicago.org/audio.  The unabridged is at http://www.schalkenbach.org/
• Social Problems, a book of essays, is at http://www.wealthandwant.com/
• so is  The Land Question
• Protection or Free Trade)
• The Science of Political Economy (published posthumously)

* Political economy is the science which deals with the natural laws governing the production and distribution of wealth and services. Seems like something most of us have a vital interest in understanding ourselves and promoting widespread understanding.

Some of George's speeches are also available at http://www.wealthandwant.com (the URL comes from the subtitle to Progress & Poverty).

Henry George, along with the other CLASSICAL economists (as opposed to the NEO-classical economists from whom most of today's students learn their economics) recognized that there were three factors of production: land, labor and capital.  The Neo-classicals seem to consider the distinction between land and capital too much nuance for their taste, and gloss lightly over it, as if land and natural resources were no longer worth talking about in 20th or 21st century America -- or the rest of the world.  While the classical economists weren't familiar with electromagnetic spectrum, or geosynchronous orbits, or rush-hour landing rights at LaGuardia Airport, or water rights, or pollution rights, or oil as a major energy source, or parking spaces for cars in congested cities, they would immediately recognize each of these things as "LAND," and they would likely agree with Henry George that we are all equally entitled to them, and that permitting some to privatize their value, and forcing others to pay them just as if they'd created them is a poor idea.

We fail to measure the value of these important assets, or we measure them only poorly, or we ignore the implications of valuing these rightly-common assets.  Or we ignore the work of those who do measure them.  Do you think that land value and natural resource value mattering is just a quaint agrarian idea, in the context of the 21st century?

• Remind me again what it is that we and others go to war over.
• Remind me how much of the typical family's budget is going to the FIRE sector (finance, insurance, real estate -- including the sellers from whom homeowners in coastal states bought their homes, who reaped what they did not sow). 
• Remind me how much the typical family is paying for energy and other non-renewable natural resources.
• Remind me which direction the average worker's wages are going, and how difficult it is to find work, despite there being so many unsatisfied needs and wants in the world
• Remind me how concentrated our nation's and the global income and wealth is -- and why.
• Remind me again of the havoc that our boom-bust cycles create in the lives of Americans and our neighbors around the world. 
• Remind me again of what sprawl costs us; of what too little exercise costs us; of what long commutes cost us; of what children growing up in families with insufficient income to meet their most modestly defined needs costs us.  (These are very closely related, and can be traced to a single underlying fallacy in how we structure our economy.  And they can be ameliorated by recognizing and correcting that fallacy.)

Then tell me again that LAND and natural resources don't matter in the 21st century.

How did economists get it so wrong?  To use my mother's phrase, their education was neglected.  Even Paul Krugman's as best I can tell.

Where to start?  Mason Gaffney's website -- http//www.masongaffney.org -- and Fred Foldvary's -- http://foldvary.net/

See also Quotable Nobels and Quotable Notables and you'll see some others who "got it" -- and got it RIGHT!

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

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

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

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

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

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

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

NRDC: Ranking States’ Oil Vulnerability and Solutions for Change

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

A few lifts from an interesting paper.  It speaks only to oil usage related to cars, putting aside heating oil and other uses of oil.

What it misses is the fact that our incentives are aligned to create sprawl, and that until we realign them, we aren't going to get smart growth.  Readers of this blog know that the first realignment -- necessary, if not sufficient -- is a reform of the conventional property tax, shifting taxation off buildings and onto land value, followed by a shifting of more of the tax burden off sales and wages and onto land value.  When we tax land value heavily, only good things happen --

• from the point of view of the environment,
• from the point of view of efficiency,
• from the point of view of the economy,
• from the point of view of encouraging smart growth,
• from the point of view of job creation and affordable housing,
• from the point of view of dense cities and walkable cities and effective public transit which people want to use and are willing and able to rely on, day in and day out.

The NRDC is not going to achieve its goals without the tool of land value taxation.   "Targets" and "funding" are all well and good, but they don't counteract the current disincentives that our system of taxation creates.  I'd be happy to provide the NRDC folks with material which will help them understand the needed change.

Good public transit systems can be fully funded by the increased land value they create.

From their paper:

America’s dependence on oil is problematic in several ways, including the following:

• The United States has less than 2 percent of the world’s oil supplies but is responsible for about one-quarter of the world’s oil consumption.2 We import almost two-thirds of our crude oil supply from foreign countries, and more and more of the world’s future supply will come from regions that are either politically unstable or unfriendly to U.S. interests.3
• Our unstable supply of oil threatens our national economy, particularly since about 96 percent of our transportation system relies on oil.4
• Oil consumption is a leading contributor to the greenhouse gas (GHG) emissions that cause global warming. In the United States, the oil-based transportation system is responsible for roughly one-third of our global warming pollution

...

Smart growth and public transit. States can reduce oil dependence by integrating land use and transportation policies and designing them to reduce vehicle-miles traveled and promote alternatives to driving. Nineteen states, including Hawaii, Georgia, Tennessee, and Maine, have adopted smart growth measures intended to curb sprawl and reduce the associated traffic and vehicle-miles traveled. Fourteen states have created an agency or other mechanism to develop and coordinate land use policies. Six states have set targets for reducing vehicle-miles traveled. In addition, some states — led this year by New York, New Jersey, and Washington — have prioritized the funding of public transit through the allocation of state funds and/or by transferring portions of their federal highway dollars.

...

• Nineteen states have growth management acts. Among the most comprehensive ways of promoting smart growth is growth management legislation, such as Washington’s Growth Management Act (GMA). This GMA affects 29 counties (95 percent of Washington’s population) and requires, among other things, policies covering sprawl reduction, affordable housing, open space and recreation, environmental protection, natural resource industries, permit processing, concentrated urban growth, regional transportation, historic lands and buildings, and public facilities and services.13 Despite Florida Governor Crist’s weakening of his state’s growth management laws this year, growth management legislation was still one of the areas of greatest improvement from last year, when only 12 states had such laws.
• Only six states have set targets for reducing vehicle-miles traveled. For instance, the state of Washington amended its GMA to make it even more effective at lowering oil consumption, calling for reductions in per capita vehicle-miles traveled (VMT) of 18 percent by 2020, 30 percent by 2025, and 50 percent by 2050.14
• Fourteen states have an agency or other mechanism to coordinate development. Many states have recognized that several different state entities influence development, sometimes in potentially contradictory ways, and have created mechanisms to coordinate public investment that supports development. In 2003, Massachusetts established a powerful Executive Office of Commonwealth Development.15 Such coordination is a vital first step toward smart development, enabling a state to take into account the wide range of relevant influences. We encourage states to use coordinating mechanisms to promote smart growth.
• Some states have prioritized the funding of public transit. Public transit systems, such as bus, commuter rail, subway, and light rail programs, are important components in state efforts to promote smart growth and reduce oil dependence. By creating or expanding reliable and accessible public transit programs, states can reduce the number of single-passenger cars on the road, consequently lowering average VMT. And strong public transit provides a critical transportation alternative as gas prices rise. A case in point: Americans drove 1.4 billion fewer highway miles in April 2008 than in April 2007 because of soaring fuel prices; many took trains or buses instead, leading to a surge in transit ridership.16 In 2008, public transportation saw its highest level of ridership in 52 years.17

States have the ability to “flex” certain federal funds that ordinarily would be spent on highway projects and use them to pay for public transit programs. States that choose not to transfer federal funds to transit programs are not necessarily neglecting transit funding, however, as they may be spending more state dollars on transit. The best way to understand state transit prioritization is to compare the amount of total state spending (including flexed federal funds) on mass transit with the total spent on highway programs, as shown in the far right column of Table 3. By this measure, the top five states prioritizing public transit spending are New York, New Jersey, Washington, Massachusetts, and Utah.

"END ALL TAXES - EXCEPT ONE"

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

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

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

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

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

The Rich List

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

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

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

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

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

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

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

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

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

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

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

Council of Georgist Organizations Conference: Cleveland 2009

Council of Georgist Organizations Conference: Cleveland 2009.

The schedule for the annual gathering of Georgists (that is, people who are persuaded that the economist and social philosopher Henry George (b. 1839, Philadelphia; d.1897, NYC), author of "Progress & Poverty" and a book of essays entitled "Social Problems," among others, pretty much had it right) is now online.  It is in downtown Cleveland in early August.

Looking over the schedule, I see a lot of familiar names -- people I've come to know since I attended my first CGO meeting in 2001 -- and some people I've not yet met face to face but know online.  I'm happy that we have few sessions running side by side, because virtually all of the programs are of interest to me.

My last visit to Cleveland was with 600 delightful women, and included a great and noisy party at the Rock 'n' Roll Hall of Fame. (I just had the pleasure of being on the host committee for the same group's 2009 Annual Meeting!)  At that time, I didn't know the significance of the larger-than-life statue nearby of Cleveland mayor Tom L. Johnson.  The book he holds in his hand is P&P.

• If you would like to see an end to poverty, come join us.
• If sprawl and its concomitants concern you, come join us; we know how to slow it and reverse it and channel it into reusing the land already well served by taxpayer-provided infrastructure. 
• If long commutes -- and the fuel, pollution, spending and time loss involved -- worry you, come join us.  
• If you would like to see a more stable economy, without the booms and busts which cause such widespread pain and ruin, we have answers. 
• If you would like to see healthier cities and a more vibrant economy, come listen to what some of these people have to offer. 
• If unaffordable housing troubles you, come talk to us. 
• If the extreme concentrations of income and wealth -- particularly of natural resource wealth -- trouble you, we know how to correct it gently and justly.
• If you hate the income tax and recognize that sales and consumption taxes damage the economy, but still believe that there are some things government can do better than the private sector, we know how to finance that spending justly.

We come from all over the political spectrum, and share little except a major commitment to creating a better and more sustainable world and society and economy for all. (That's a lot actually!)  It is a joy to spend a few days with people so passionate about social and economic justice and with a clear vision of how to get there.

If you're curious about Henry George, you might start where I started, with four of his speeches.  I found these as pamphlets in the files of my late grandparents when I took possession of their library and file cabinets and some sentimental treasures.  My first pass was for genealogical information.  Shortly after that, I started reading a speech entitled "Thou Shalt Not Steal," and it clicked. My paternal grandparents (three of them, actually: my own grandparents, and my step-grandmother, whose first husband was a dear family friend, too, in the 1940s and 50s) were all Georgists.  For every landmark occasion in my young life, their gifts included a lovingly inscribed copy of Progress & Poverty (just in case I'd misplaced the previous ones!)  But I'd not done more than thumb through it.   When I first did get around to reading it, I was in my late 40s; my grandparents were quicker studies, and devoted the second half of their lives to promoting these ideas.  My first read of P&P was a slow slog; a friend shocked me when she said she found it a page-turner, a mystery whose solution she was anxious to get to.  Now I admit I read it for, and with, pleasure.

Another piece you might read is my grandfather's "An Introduction to Henry George" or my grandmother's more humorous article, "My Introduction to Henry George;" she went on to write delightful short stories for Ladies Home Journal, Colliers, the Saturday Evening Post and many other magazines in the 40s.  Things have come full circle -- I'm on the board of two Georgist foundations, including the one my grandfather worked for and with for over 30 years, the Robert Schalkenbach Foundation.  And following in the example of my late stepgrandmother, who tried to write an activist letter every day, I try to post comments on either my blog or other blogs or articles online every day.  I mostly succeed, though in the past month or two, I've fallen short.   And I've created a website to make Henry George's ideas accessible to people coming from a wide range of interests and points of view: http://www.wealthandwant.com/

How Do We Fix an Ailing Economy?

Georgists -- people who have read one or more of Henry George's books*, and are persuaded of the logic and truth of his findings and diagnosis -- have, for over 100 years, had an answer to share with the rest of us about how to make our economy more just, more honest, more vibrant and more stable; make equal opportunity real; protect the environment from despoilment; reduce the excessive concentrations of wealth and income without destroying incentives which encourage productivity.

* e.g., Progress and Poverty; Social Problems; Protection or Free Trade?; The Science of Political Economy; The Land Question, etc.  Henry George (b. 1839, Philadelphia; d. 1897, NYC) was among the most prominent and widely read Americans of the late 19th century, and no one has successfully refuted his observations or his prescriptions; yet few of us, even economics majors, are exposed to his ideas in the course of even a highly regarded college or university education.   More of us who know his ideas have found them through our own research, or through a course at a Henry George School (e.g., NYC, Philadelphia, Chicago, etc.) or online (henrygeorge.org)

Georgists know some things that other people don't seem to know.  It is common sense.  It is logical, not all that complex.

Paul Harvey's "thing" was to tell us about "the other part of the story."  Well, Georgists know a lot about the rest of the story.  We know that federal spending on infrastructure is only half the story of stimulating the economy (and even know that it is not necessary!)

If all we "do" is the federal end of stimulus, we aren't going to get anywhere.  We may even make some things worse -- unintentionally, of course, but worse nonetheless -- for a significant percentage of us. 

Armed with Henry George's observations, we would know how to fix this economy and create a better one.  We can reduce the need for consumer credit, freeing up more funds for productive investment by industry.   We can undo the machine which creates poverty and simultaneously enriches a particular class of us.

About Land Value Taxation

If you spend some time reading this blog, you might come away thinking that I believe that land value taxation is a cure-all, a panacea. (See the "topic cloud" in the left sidebar.)  But that isn't the case. 

However, I have come around to the point of view that many of our most serious social, environmental, economic and justice problems are not going to be solved -- cannot be solved! -- without the enactment of land value taxation.

That sounds extreme, particularly to those who have never heard of LVT or who have read little about it.  

So many of our most serious problems ultimately find their root in the privatization of the natural creation -- that which the classical economists called land, including things that the classical economists would have known nothing about, but would immediately recognize: electromagnetic spectrum, geosynchronous orbits, landing rights at LaGuardia (particularly at rush hour), etc..

Let me be more specific.  It isn't the privatization of land, or oil resources, or minerals, or geosynchronous orbits, or water rights themselves that is the problem.  Secure title is necessary and important.  Rather, the problem is that the economic value of these common resources is currently treated as private treasure rather than as our common asset.   But we need revenue for public purposes, so we then tax sales and wages and interest.  But those who need land pay others for it (unless they inherited the rights to it) either in the form of rent or in the form of a lump sum, and then are burdened with the sorts of taxes which depress the economy and steal from them that which they produced (in addition to the significant costs of servicing the debt related to that lump sum payment).

Land, in all its forms, is not of human creation.  We can't create more of it in response to an increase in demand.  In particular, we can't create more land downtown, where it is served by awesomely important infrastructure that took decades and millions or billions to build.  We can't create more water, or more frequencies on FM or AM radio. Yet we permit the privatization of the economic value of these and other like vital and fabulously valuable common assets.

Were we to shift our taxes off productive effort, off sales, off buildings, and onto all these things called "land value," we would be on our way to solving many of our environmental problems, our social problems, our economic problems, urban sprawl and its concommitants, and many of our justice problems. We'd have a more efficient economy, a more vibrant one, without the excess burden (deadweight loss) our current system creates.  We'd have opportunity, jobs, a growing pie, and lose the boom-bust cycle which plagues us.

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

Reprinted in The Public, October 6, 1906

THE INFLUENCE OF TAXATION ON THE PROSPERITY OF CITIES

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

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

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

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

Conditions of Prosperity.

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

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

Grocery Store Parking Lot: Sprawl in Microcosm

When I seek a parking spot near my local grocery store, I am brought face to face with a form of sprawl.  While I am not one to drive around for long looking for a parking spot (it seems a waste of time and energy), I find myself dealing with a simple form of sprawl: parking spots occupied or blocked by shopping carts.  The parking spots can't serve their intended purpose because someone has left behind an underuse.   

How much land does a family need? What are the implications for our country?

A friend's comment that for most people, a lot of 15,000 to 20,000 square feet is about all we could put to use (for a home), got me thinking. That's 0.33 to 0.46 acre.  Certainly some of us need more, particularly if we are market farming or are growing all our own food.  Many of us live on far less land, particularly in or near cities.  In Manhattan, a lot 25' wide and 100' deep, or 0.057 acres, is standard, and might bring $7 million or more; it might house a single family, quite generously, in 3 or more stories.

At 2.5 persons per household, 0.33 acre average lot size works out to 2.5*3*640 = 4800 people per square mile.  To accommodate all 300 million of us would require a circle with a radius of 141 miles.  (Calculation: 300,000,000, divided by 4,800, divided by pi; take the square root.) That's a circle whose opposite edges are in

• Los Angeles and Las Vegas	272 miles
  Pittsburgh and Cincinnati	285 miles
  Albany and Buffalo	288 miles
  Chicago and Cincinnati	291 miles
  Philadelphia and Pittsburgh	297 miles
  St. Louis and Nashville	304 miles
  New Orleans and Montgomery	310 miles
  Boston and Philadelphia	317 miles
  Atlanta and Charleston, SC	320 miles

  
  

A 0.50 acre lot size works out to 2.5*2*640 = 3200 people per square mile.  To accommodate all 300 million of us at that density would require a circle with a radius of 173 miles.  That's a circle whose opposite edges are in

New Orleans and Birmingham	339 miles
Kansas City and Oklahoma City	343 miles
New Orleans and Houston	346 miles
Chicago and Columbus	351 miles
Baltimore and Cleveland	361 miles
New York and Pittsburgh	362 miles
Albany and Washington, D.C.	366 miles
Los Angeles and Phoenix	372 miles
Atlanta and Memphis	387 miles
Minneapolis and Chicago	403 miles

If we were all content with a single-family home on that Manhattan 25x100 lot, the calculation would be 2.5x17x640 = 27,200 people per square more.  To accommodate all 300 million of us would of require a circle with a radius of 105 miles ... diameter of 210 miles.  No we haven't even talked about any multi-family housing!  This is all single-family. 

Not everyone wants as much as 0.33 acres. If we return to the 0.33 acre assumption per family, but assume that half of the single-person households would prefer 0.05 acres, and that 25% of the remainder of households would prefer 0.10 acres.

1-person households represent about 52 million people.  If half of those households would choose to live on 0.05 acres, and the other half would still want to be on .33 acre, the "central core" of 26 million people would live on 26 million*.05 acres/640 = 2,031 square miles; that's a radius of 25.4 miles.  If the rest of us, 248 million, chose to live at .33 acre per household, with an average household size of 3.0 (pulled from thin air!) that would be 248 million, divided by 3 per household equals 83 million hh at .33 acre is 42,800 square miles; add that to the 2,031 sq miles occupied by the .05 acre group.  That's 44,831 square miles.  Divide by 3.14, and take the square root: the circle would need to have a radius of 119 miles.  A 240-mile circle would be the area between

• Dallas and Houston  -- 239 miles
• Chicago and Detroit -- 275 miles
• St. Louis and Indianapolis -- 244 miles
• St. Louis and Kansas City -- 244 miles.

Of course none of these calculations allows any room for places to work, so let's say that we need to devote, say, 30% of our land to places that would employ us (and simultaneously provide for our shopping needs).  Let's further say that beyond that we need to allow 20% more for streets, railroads, parks, rivers, airports, schools.  That 44,831 square miles grows to just about 70,000 square miles. 

So how big an area is that?  Divide it by pi (3.14) ... 22,300 and take the square root: 149 miles.  That's a 300 mile circle, to contain all 300 million of us!  

And if, instead of a single urban area 300 miles across, we instead looked at 50 cities, they would need to be 1,400 square miles each, with a radius of 21 miles (and a population of 6 million people each). 

Some of us don't care about being within a commuting distance of what a city has to offer, and prefer to live in the wide open spaces.  That's fine, as long as they cover the costs themselves.  And they shouldn't be asked to pay for the infrastructure of the cities, except to the extent that they make use of them.  

NYT: Property Values - What You Get for ... $850,000

Property Values - What You Get for ... $850,000 - NYTimes.com

As I read this regular column, I generally have several thoughts:

1. The size of the lot is relevant, whether the home is on a city postage stamp, or a country estate.
2. For multi-story multi-family buildings, I'd like to know the number of stories and the footprint of the unit.
3. The age of the building is useful to know; many are quite old and, likely, quite inefficient, even obsolete
4. Right below the Property Tax information, I'd like to see the percentage of the school district's high school graduates who go to 4 year colleges, and the drop out rate from 9th grade to 12th.  (This matters even if the target audience is 2nd home New Yorkers whose children won't attend those schools.)  Generally, there seems to be a strong correlation between high property taxes and quality of local education.

What the typical reader probably doesn't think about is that for most of these properties, it is the location which is valuable, not the house itself.  The writeups sometimes describe the locational amenities: transportation infrastructure and services, views, parks, jobs.  All these things are definitely worth paying for; the question, of course, is who we should be paying, and how.  Should we pay the previous owner, who didn't create any of those things -- or should we pay the community, which did?   Should we pay the community in the form of taxes on our labor, or in the form of taxes on the value of the land we occupy?

See paying twice, paying the wrong party, privilege, windfall, unearned increment, rent, rent is for the community.  There is a better way to finance our common spending than what we're doing now.

Some Factoids from the CBO on Infrastructure Investment

I'm reading Peter Orzag's statement, from 7/10/08, when he testified before the Senate's Committee on Finance, and thought I'd collect some of the interesting bits and pieces, and offer some observations.

Eisenhower's roads to prosperity

Eisenhower's roads to prosperity - Los Angeles Times.

Tom Lewis describes some of the history of Eisenhower's huge infrastructure initiative, the Interstate Highway system, in the context of Barack Obama's plans to use infrastructure as a job-creation tool.

What most people don't seem to realize is that investments in infrastructure do more than create jobs in the process of the development of the infrastructure and in its maintenance: they also create something else of much larger importance, which we as a society have chosen to pretend is of little or no significance, to our detriment.  (How's that for understatement?)

What is it?  Every worthwhile infrastructure project creates more land value than the project costs.

I'll repeat that.  Every worthwhile infrastructure project creates more land value than the project costs!    Therein lies one of the most important keys to solving many of our most serious problems.

The Foldvarium: How to Extirpate Poverty

The Foldvarium: How to Extirpate Poverty.

I'm going to take the liberty of posting Fred Foldvary's entire post.  It is relevant to a lot of things I've been thinking about a lot recently.  I've added links to some pages at wealthandwant.com which expand on some of Fred's concepts.   I'm intrigued with his definition of extirpate -- it is the one I associate with "eradicate" -- to remove by the root.  Google definitions suggests that extirpate has the sense of having been made locally extinct but still in existence elsewhere.  Here's the Latin root: [Latin exstirpare to root out] -- likely related to "stirpes" -- as in "per stirpes" -- [Latin, By roots or stocks; by representation.]

How to Extirpate Poverty

To “extirpate” means to complete eliminate, from the Latin word meaning to pull out by stem and root. To extirpate poverty means to eliminate its cause, so that it does not come back. Fundamentally, poverty comes from a low wage level, so we need to examine what makes a wage level low.

The wage level of an economy can be thought of as the wages paid to unskilled people. Those with greater skill and talent get higher wages, so some think that the solution to poverty is better education. But a stagnant economy also depresses the return to human capital, the extra wage for those who are more productive. In a thriving productive economy, even those with few skills are better off than skilled labor in a depressed economy. Indeed, in an unproductive economy, those with skills often find little market for their human capital.

The wage level of an economy is set by marginal labor, those who work at the least productive land in use. The classical “law of wages” says that when workers are mobile, the wage at the margin of production will set the wage level for the rest of the economy.

The Feoffees may sell Little Neck to the tenants ... for ever and ever

For background on this story, you might look at two previous posts (below):

• The Feoffees, their tenants, and the Ipswich public schools  February 20, 2008

• Update on the Feoffees' tenants in Ipswich, Massachusetts  July 8, 2008
  

I was surprised to learn that the Feoffees of Ipswich had decided to sell the property for which they have been trustees for over 300 years.  They have an agreement to sell the 36 acre property to the 167 tenants, who individually own cottages which sit on lots totaling a bit more than half the of the 36 acres; the rest of the land is apparently common property, shared by all the cottage owners (and their tenants) -- and assessed by the town at 10% of what a comparable sized lot with a home on it is assessed for.

Since Chicago has sold off on-street parking to a private entity (a financial services company), and Indiana has sold some toll roads to a foreign corporation, I suppose I should not be surprised that the Feoffees of Ipswich have followed suit.  But I am disappointed.  (I know nothing more of the story than what I read online and I've read everything I can find.)  It seems to me that the fellow who owned the land in the 1600s and chose to donate it to his community, for the ongoing benefit of the town's public schools, did a good thing.  He knew the land was choice (oh -- what a sweet place it appears to be, from all the photos!)   He might not have anticipated that a railroad would make it possible for daily commuters to work in Boston and live in Ipswich, but clearly the sheltered almost-island not far from the Atlantic ocean was a fine site. 

So the articles raise some interesting questions. I'll be curious to see how they get resolved.

1. The agreed-upon purchase price is $26.5 million.  What is the entity that will purchase it?  The tenants' association? 

2. How will the individual lots be valued, when it comes to the shares of ownership in the property?

3. Need one be a tenant to buy either a lot or a share in the Little Neck association?

4. If an individual cottage owner can't afford to purchase his lot, or his share of the $26.5 million, what provisions will be made?

5. Will the 24-year-round and 143-seasonal rule continue?  Will owners of "Seasonal" houses be permitted to buy rights to use their property year-round?  At what price?

6. Will there be tears shed over the folks who can no longer afford their cottages?

I'd like to suggest a model that the Little Neck tenants might want to consider.  Instead of owning the individual lots outright and sharing ownership of the other ~50% of the land through some association, they ought to consider continuing to rent the land out. Arden, Delaware, does this -- has since about 1903 -- and it is a fine place to live.  Like Little Neck, Arden has smallish lots and lots of common spaces, which make a very fine place to live.  Arden collects land rent from every homeowner, sufficient to cover local taxes on the land and buildings, and to provide other services within the community.  Taxes are not placed on buildings.  Land is valued according to its size and its proximity to positive and negative amenities.  In Little Neck, this would mean that lots with better views would pay more than comparably sized lots with more modest views, and, likely, that lots with the rights for year-round occupancy would pay significantly more than those with only seasonal access.  

And the Ipswich assessor ought to watch property values carefully.  When 80-year-old 900-square-foot cottages sell for $300,000 or $400,000 -- just for the cottage, not for the cottage and its land -- the full economic rent is not being collected.  (See http://lvtfan.typepad.com/lvtfans_blog/2008/07/update-on-the-f.html.)

$26,500,000 divided by 167 cottages works out to a mere $159,000 each. What a deal!

I'm amazed that the Feoffees would accept such an offer.

Looking at current real estate listings,

• there is a property asking $625,000. The assessor values the land at $294,300 and the 1910 building at $90,300, for a total of $384,600. That's one of the larger lots. Across the road is a vacant lot half the size, valued by the assessor at $27,600.
• Another property, listed at $339,900 consists of a 1935 cottage, valued at $81,800 and a lot valued at $185,500, for a total assessed value of $267,300.
• A third is listed at $465,000; the 1930 cottage is valued at $109,500, and the lot at $185,500, for a total assessed value of $295,000.
• A fourth is listed at $495,000; the assessor values the cottage at $102,900, and the land at $228,700, for a total of $331,600. (A nearby lot, the same size, is valued at $18,500.)

How on earth can the Feoffees justify accepting only $26.5 million for this fabulous land? $159,000 each, on average. Incredible. What a deal for the tenants. What a lousy deal for the beneficiary, Ipswich's schools, forever.

Land rent is a powerful thing.  Good things happen when it is collected and used for the benefit of the community.  Using it for common purposes -- schools, infrastructure, public health, emergency services, transportation systems, to name a few -- leads to healthy communities which are both fine places to live and fine places to visit, and fine places to run a business.  Letting it sit in private pockets generally leads to expensive housing, land speculation both in the residential and commercial neighborhoods, sprawl, old buildings, -- and, worst of all, reliance on sales taxes and taxes on wages, neither of which should be taxed at all.

I'll probably be revising this post a bit, but thought I'd publish it sooner rather than later.

This blog has more observations and history on this story.  See them collected at  http://lvtfan.typepad.com/lvtfans_blog/feoffees-land/.

Daily Kos: One Person's Lot is Person's Loot

Daily Kos: One Person's Lot is Person's Loot.

Eron Lloyd has an excellent post over at Daily Kos.  He's writing about Philadelphia, but could just as well be writing about most American cities and towns.  He writes,

At the Mayor's third town hall meeting last week on the budget cuts, I was handing out our Philadelphia LVT brochure to people before the meeting as usual when I had a brief but interesting exchange. A man walking into the building took a quick look at my brochure and handed it back, shaking his head. He said that he works for the city, and that "there's no money in land" to solve the city's problems. ...

After the meeting, I decided to test this person's belief while walking along Girard Ave. back to my car. Across the street were some vacant lots that looked like they'd been empty for years. It appeared to be about 3-5 lots in size, with huge weeds and junk all over the place. Rather than describing it in detail, have a look for yourself.

Eron goes on to describe the property, the public records on it, and the location, and then tells us that the property is for sale.  I'll leave it to you to read the rest of his post, and to consider how we currently finance public spending, and how the incentives affect our economy -- local and national.

Change.gov

The new administration is seeking comments.   I'd like to believe they'll be read.  Here's what I posted at http://change.gov/ under "economy":

We need to shift taxes OFF productive effort and ONTO land value and natural resources.    Doing so will have a wide range of benefits.

hear, read, mark, learn, and inwardly digest

This phrase comes from an Anglican prayer book, but it came to my mind when I was writing to a foundation which claims to be in favor of a just society.  Examining their website, I could see no sign of any familiarity with Henry George's ideas, and this phrase, whose origins I could not bring to mind, popped into my head. 

Hear ..., read, mark, learn, and inwardly digest ...  The reference is to scripture, but I think it might apply nearly as well to Henry George's ideas, if you regard any of these as important:

• ending poverty
• improving wages
• sharing nature's bounty more evenly among us
• protecting the environment from despoilment
• reducing, even reversing, sprawl
• making housing affordable
• making cities more vibrant
• creating jobs
• making effective public transportation systems realistic 

(I'd be happy to see any one of those ... and thrilled to see all of them.  Dayenu!)

 Well, Henry George has been called "The Prophet of San Francisco" -- that's where he wrote Progress & Poverty -- and many people consider him to have answers to problems that most people think are completely intractable.

Hear, read, mark, learn and inwardly digest ... and then get to work creating a more just society, for yourself, your neighbors, and all our children and future generations.

Taxes and Tolls Sought in Plan to Save M.T.A. - NYTimes.com

Taxes and Tolls Sought in Plan to Save M.T.A. - NYTimes.com.

The tax on payrolls, expected to be less than one half of 1 percent, would apply to businesses in the 12-county area served by the authority. It would be paid by businesses, not employees. The tax would be designed to raise $1 billion a year or more.

It would be coupled with the new bridge tolls, which would generate about $600 million a year, after the cost of maintaining the bridges and collecting the tolls is accounted for. Drivers would pay a higher rate on the East River bridges than on the Harlem River bridges under the plan.

There would be no toll plazas: Most tolls would be collected through a system of E-ZPass readers. Drivers without E-ZPass would be identified and could be billed using digital cameras that snap a picture of each vehicle’s license plate.

Control of those bridges, which are owned by the city, would be transferred to the authority under the plan, although it was not clear how that would be achieved.

The third main element of the proposal is a more modest increase for next year in fares and existing tolls on the bridges and tunnels already controlled by the authority.

That increase would allow Mr. Ravitch and his supporters to argue that the cost of running the system was being shared by all those who benefit from it.

So we've got a proposal that the way to pay for the shortfalls in providing the public transportation on which the NYC economy is vitally dependent is from taxing employers, imposing tolls on previously free bridges into Manhattan, and raising existing bridge tolls (which fall on those who don't use public transportation [except perhaps bus commuters?]

Most interesting is the final sentence quoted above:

That increase would allow Mr. Ravitch and his supporters to argue that the cost of running the system was being shared by all those who benefit from it.

Ah, but he has omitted from his analysis something vitally important: paying in proportion to the benefit received. One of the biggest -- huge!! -- beneficiaries would pay next to nothing!  To whom am I referring? The landlords of New York. 

Trickle-Up Economics

http://www.youtube.com/watch?v=6ZkfmY1PMng

That's the link to a film which explains rather neatly, in about 7 minutes, how one very significant aspect of trickle-up economics works.

The film is called Ricardo's Law ~ The Great Tax Clawback Scam  and I commend it to your attention.

Change Needed to End Boom-Bust Cycles

John Fisher wrote an excellent Letter to the Editor, published in the Chatham Daily News, which I think worth sharing:

Sir:
Re: Boom and Bust Cycles.

No matter how many billion-dollar crutches (bailouts, stimulus) are thrown at the current economic downturn, up-and-down cycles will continue until the "experts" get back to Economics 101.

Adam Smith, David Ricardo, Henry George and other classical economists correctly defined land (free gift of nature), labour and capital as the three factors of production. Land or nature, not being created by labour, is not capital. Unlike privately created wealth, nature only gets value from the presence and activity of the community as a whole.

The economy is often compared to a house or a ship, but usually without reference to the lot or water upon which they absolutely depend. All the good things the experts now suggest to improve the house or ship will ultimately determine the value of the underlying natural base, depending of course on human pollution, over and restricted use, etc.

Giving nature a value like we do now for land and then capturing it for the social good would reduce urban sprawl and waste of resources, while rewarding quality and quantity in the production process.

Many classical economists, including Henry George, would shift taxes from private wealth (the house) to public wealth (the land). In other words, pay for what you take from nature and not what you make privately. With little cost to government, this simple tax shift would remove unearned income from resource speculation and enable tax reductions on wages and business.

Until economic justice and reason prevail with a major tax shift from production (jobs, houses, trade) to resource values (raw land, water, oil) the world will continue to suffer from monopolies of nature and economic turmoil.

If you'd like to know more about these subjects, from a Georgist point of view, you might explore these pages:

boom-bust cycles  | Adam Smith |  David Ricardo  |  Henry George | classical economists  | land  | labor |  capital | factors of production | well-provisioned ship  |  all benefits go to the landholder | growing rich in one's sleep  | technological progress | population growth  |  he who produces | pollution  |  pay for what you take |  unearned increment | land speculation  | privatization  | commons  |  enclosure  | sprawl

John packed a lot into a single letter, and I'm glad the editor had the sense to print it.  Now, if only more of us understood what John does.

On a well-provisioned ship, how is it that 6% of us consume ~25% of the resources?

As we, perhaps, become somewhat more appealing to the other 94% of the globe's residents as a result of the choice the voters made on Tuesday, we still need to consider the question of the rightness and the sustainability of a country which has 6% of the world's people consuming about 25% of the world's resources.

There is the theory of American exceptionalism. A Google search provides the Wikipedia definition of American exceptionalism; The second thing Google brings up is a recent book review from The American magazine:

Understanding American Exceptionalism

By Karlyn Bowman Monday, April 28, 2008

An ambitious new book explains how and why the U.S. is so different from other countries around the world.

“America is indeed exceptional by any plausible definition of the term and actually has grown increasingly exceptional [over] time.” This is the conclusion of the editors of a new volume, Understanding America: The Anatomy of an Exceptional Nation (PublicAffairs, $35). At an American Enterprise Institute conference on April 22, Peter H. Schuck and James Q. Wilson introduced the collection of essays, which is designed to probe Alexis de Tocqueville’s observation that America is “exceptional,” or qualitatively different from other countries. The book, which examines 19 different areas, marshals the best and most current social science evidence to examine America’s unique institutions, culture, and public policies.

During his introductory remarks, AEI president Christopher DeMuth said that no effort to understand the meaning of American exceptionalism had been “more ambitious and far-reaching” than this book. Not only does it describe the ways — both good and bad — in which Americans differ from people in other nations, DeMuth said, it also considers whether American exceptionalism is likely to continue, and how it matters to the world. DeMuth noted that Americans are more individualistic, self-reliant, anti-state, and pro-immigration than people in many other countries. They work harder, are more philanthropic, and participate more in civic activities. On the negative side, America also has a higher murder rate than some other countries. 

Wilson noted that one of the best ways to understand American exceptionalism is to look at polls. Three-quarters of Americans say they are proud to be Americans; only one-third of the people in France, Italy, Germany, and Japan give that response about their own countries. Two-thirds of Americans believe that success in life depends on one’s own efforts; only one-third of Europeans say that. Half of Americans, compared to one-third of Europeans, say belief in God is essential to living a moral life. 

Three-quarters of Americans say they are proud to be Americans; only one-third of the people in France, Italy, Germany, and Japan say that about their own countries.

Negative views of America in polls today have been shaped by the Iraq war and by the response to President Bush, Wilson noted, but criticism of America has a long history, particularly among elites. He quoted Sigmund Freud as saying, “America is a great mistake.” “Anti-Americanism was an elite view,” Wilson continued, “but it has spread deeper to publics here and abroad.” 

Schuck said that Understanding America casts a new light on American exceptionalism by examining it at a micro level. He identified seven overarching themes that connect the essays. 

(1). American culture is different. Its patriotism, individualism, religiosity, and spirit of enterprise make it different. The United States, Schuck said, “is more different from other democracies than they are from one another.” 

(2). American constitutionalism is unique in its emphasis on individual rights, decentralization, and suspicion of government authority. 

(3). Our uniquely competitive, flexible, and decentralized economy has produced a high standard of living for a long time, even though it now generates greater inequality. 

(4). America has been diverse throughout its history. Schuck cited research by historian Jill Lepore, who found that the percentage of non-native English speakers in the United States was actually greater in 1790 than it was in 1990. The thirst for immigration, he said, has transcended economic booms and busts. 

(5). The strengths of civil society here make America qualitatively different. No other country, he said, allocates as much responsibility for social policy to the nonprofit sector. 

(6). The characterizations of the United States as a welfare-state laggard compared to Europe miss an element of American distinctiveness: its reliance on private entities to provide certain benefits. 

(7). We are exceptional demographically with our relatively high fertility rate. 

... The editors of Understanding America, Schuck and Wilson, believe that the “stakes in understanding America could hardly be higher. For better or worse, America is the 800-pound gorilla in every room in the world.” 

Karlyn Bowman is a senior fellow at the American Enterprise Institute and a contributing editor to THE AMERICAN.

Americans are consuming roughly 25% of the world's natural resources, despite representing only 6% of the world's people.  As others  see themselves as our equals -- equally entitled to the world's resources, including the carrying capacity of the environment to handle the pollution we spew out, how are we going to reconcile the notion that all men are created equal with their very reasonable expectation that they are equally entitled -- and further, that future generations are entitled to inherit a world that works and a planet with resources available to meet their needs, too -- not to mention, within the US, the younger generation's very reasonable right to not be paying for our generation's wars and mistakes?

And then remember that within the US, the top 1% of wage-earners are getting 12% of wages; the top 10% are getting nearly 36% of wages.  When we look at all income excluding capital gains, the top 1% of income recipients are receiving nearly 20% of income and the top 10% are receiving 47% of income.  When we look at income including capital gains -- the most inclusive measure -- the top 1% are receiving nearly 23% and the top 10% nearly 50% of income.   [Source: Piketty & Saez, 2006 data]

And when we look at the accumulated net worth of Americans, in 2004 the top 1% of wealthholders had over 33% of the net worth; the top 10% of wealthholders held nearly 70% of America's household wealth. [Source: FRB Survey of Consumer Finances, 2004.]

How much of that wealth is created out of thin air, without the use of natural resources?   We've learned a bit about assets created from thin air, and we may have reason to worry greatly in coming months about the moods and portfolios of those who invested heavily in hedge funds.  But I'm willing to bet that were we to get a new snapshot of the same statistics for, say, October 31, 2008, the wealth concentration would be little a bit higher than 2004's.  (The 2007 data will likely be available in January, if previous publication patterns hold.) 

Natural resources and resources which are rightly common property -- the economic value of land, of broadcast spectrum, of water rights, of landing rights, of many other like things, which the neoclassical economists would recognize as "land," as opposed to "capital"  -- have been privatized -- quite legally -- to produce the wealth and income concentration which America lives with.  They've played by the rules -- but the rules aren't just or right.  It is time to revise the rules and the structures. 

By doing so, we can do something about our excessive use of the world's scarce resources; reduce urban sprawl; shorten commutes; increase urban density; encourage job creation, raise wages, reduce wealth concentration, improve the economy's efficiency, remove much of the deadweight loss, motivate the private sector to provide, at a profit, affordable housing for all.   And reduce our overuse of the world's natural resources significantly, making us an example to the rest of the world of what to do and how to do it, rather than the opposite.

Too much to ask of one reform?  Too much to ask for?  NO!

 

Americans and Mass Transit

An article in Salon last week, entitled Who says Americans won't ride mass transit? contained some interesting factoids:

• Like mass transit systems across the country, BART has experienced record ridership this year. In 2007, Americans took 10.3 billion trips on public transportation, the highest number since the Model T and its progeny took over the nation.
• Back in 1926, Americans each year took 147 transit rides per capita.
• By 1950, Americans took just 113 transit rides per capita, and by 1956 that number had plummeted to just 66. By 2006, Americans took just 33 transit trips a year per capita. In the decades since World War II, it has been only in the dense financial centers, like New York, Chicago and San Francisco, where transit has been able to stubbornly resist the rise of the car, remaining a major way for many residents to get around.
• In 1960, some 12 percent of all U.S. workers used transit to get to work. By 2000, that number was down to 4.7 percent, and in the past couple of years it has just barely ticked up to 4.9 percent.
• Since the early '80s, 15 major American cities, including San Diego, Portland, Ore., Denver, Houston, St. Louis, Salt Lake City and Los Angeles, have built new light-rail systems from the ground up. Dozens of other cities are considering proposals for similar systems, or have them in development, such as Phoenix and Seattle.

So how do we go about making our cities and towns mass-transit-friendly?  Seems to me that measures that lead to increased density will help support mass transit ... and that mass transit will support increased population density.

The best measure I know is shifting taxes onto land value.  Sites well-served by infrastructure (e.g., roads, bridges, highways, airports, public transportation systems, ports, city water and sewer, stormwater runoff and, where needed, levees or hurricane protection, etc.) -- and services (e.g., schools, emergency response for small- and large-scale emergencies, public health, courts, etc.) -- and in places made desirable by nature (e.g., good views, waterfront, access to recreation, an appealing climate, a reliable supply of clean water, etc.) and good laws (e.g., limiting pollution, unpleasant smells, noise, etc.), efficient and uncorrupted government, and a healthy economy (with smart incentives and few disincentives to productivity, good infrastructure, logical and efficient services provided by the government, particularly in natural monopolies) have tremendous value.  For a good example of this, see this post.

When we tax land value lightly, those who own choice sites can choose whether to sit and wait -- without lifting a finger -- for the rise in land value they can reasonably expect to occur, or put the land to good use now.  Putting the land to good use now creates jobs, housing, offices, retail spaces, density.  Sitting and waiting produces nothing on that site, and leads to sprawl at the fringes.  Should our landholders have that choice, or is putting such sites to something approaching their highest and best use sufficiently important to the community as a whole that we ought to have incentives to good land use?  I'd say that reducing and reversing sprawl is sufficiently important that we ought to be taxing land value heavily. 

And there are many other good reasons to do so beyond this one.