LVTFan's Blog

CBO data: Historical Effective Federal Tax Rates for 2005 and 2006

Every year at this time, the Congressional Budget Office issues an interesting report on taxable income and federal taxes paid.  It doesn't seem to attract much attention.  Maybe we're just used to hearing how concentrated income -- and, in particular, income-producing wealth -- is in America.  Maybe it just conflicts with our notions of "created equal" and "equal opportunity" and "equal liberty," and, not knowing how to deal with the reality, we skip over it.

But here it is.   The report is at http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf and historical data is at http://www.cbo.gov/publications/collections/taxdistribution.cfm  The first report is short -- 5 pages with 2 tables (one for 2006, the other for 2005 -- 3 panels to each).

Here are some highlights.

1. The average federal tax rate, including individual income taxes, was 20.7% in 2006.  That is composed as follows:

9.1%	individual income taxes
7.5%	social insurance taxes
3.4%	corporate income taxes
20.7%	total federal taxes
source: Table 1, Panel A, 6th column.

2. While the average federal tax rate is 20.7%, the average tax rates within quintiles are as follows

	average federal tax rate
bottom 20% of us	4.3%
second 20%	10.2%
middle quintile	14.2%
fourth quintile	17.6%
only in the highest quintile does the     overall federal tax rate exceed the "average"	25.8%

3. Within the top quintile, the table provides these data:

	average federal tax rate
top 10% of us	27.5%
top 5%	29.0%
top 1%	31.2%

4. I did a bit of spreadsheet work, and broke out the quantiles, which yields a very different picture from what the preceding four data points might suggest:

	average federal tax rate
top 1% of us	31.2%
next 4%	25.6%
next 5%	22.5%
next 10%	20.8%

In other words, we can reasonably estimate that fewer than 10% of us pay more than the "average" share of realized income in taxes.  Lake Wobegon in reverse: over 90% of us are below average.

5. Individual income taxes, so much on the minds of some of us at this time of year, represented 9.1% of income, or about 20% more than the 7.5% that social insurance taxes represented in aggregate.  But only in the highest quintile do individual income taxes exceed social insurance taxes. [Table 1, fifth data column, 2nd and 3rd rows.]

6. Distribution of income and of taxes:

	percent of pretax income	percent of federal taxes	percent of after-tax income	percent of social insurance taxes
top 1% of us	18.8%	28.3%	16.3%
next 4%	13.1%	16.4%	12.2%
second 5%	9.7%	10.7%	9.6%
second 10%	14.1%	13.9%	14.0%
[There may be some rounding error in there somewhere.]
top 20%	55.7%	69.3%	52.1%	43.5%
The bottom 80% of us received less than half the aggregate income.

7. Social insurance taxes place a signficant burden on people in the bottom 4 quintiles.  The figures incorporate both the employee's portion and the employer's portion.                   

		Avg Social  Insurance Tax Rate		Share of Social Insurance Tax Liability
Top 1%		1.6%		4.0%
Next 4%		6.3%		10.5%
	Top 5%		3.4%		14.5%
Second 5%		8.6%		11.2%
	Top 10%		4.6%		25.7%
Next 10%		9.2%		17.8%
	Top 20%		5.8%		43.5%
	Fourth 20%		9.6%		25.0%
	Middle 20%		9.4%		16.6%
	Second 20%		9.2%		10.3%
	Bottom 20%		8.5%		4.4%

The bottom 20% of us pay more in Social Insurance Taxes than do the top 1%, though the top 1% have average pretax income 100 times as high and aggregate income 4 times as high.

In 2006, the FICA wage limit was $94,200.  So the second pair of data columns suggests the distribution of wage income below $94,200. 

7. Table 1, Panel 2 shows that 57.7% of capital income flows to the top 1% of us; a bit of spreadsheet work shows that 16.4% flows to the next 4% of us; 7.0% to the second 5% of us, and 6.7% to the second 10% of us; the top fifth of us gets 87.2% of that income.   Remember that next time you hear about "Main Street" and "Small Business" as if they are enriching the middle class.

If we define the middle class as the middle 60%, we find that they have 41.8% of pretax income, 44.9% of aftertax income, pay 30.2% of taxes, and 52.7% of social insurance tax taxes

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.

A Price for Existence

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

A Price for Existence.

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

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

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

The ‘W’ Word, Re-engaged - ["Welfare"]

The ‘W’ Word, Re-engaged - NYTimes.com.("Welfare," that is)

These colliding instincts — pro-safety net, anti-welfare — each draw on legitimate concerns. One side sees poverty amid plenty, and an economy that heavily favors the few even when times are good. It trusts the impulse to help.

The other fears taxation, warning that it can quash initiative and choke an economy. This side also stresses moral hazards, warning that while feeding the hungry may be necessary, it can discourage people from feeding themselves.

“This tension waxes and wanes — but it remains a tension, absolutely,” said Isabel V. Sawhill, a researcher at the Brookings Institution. “Americans understand that some people are poor through no fault of their own. On the other hand, they suspect that some people aren’t doing all they could to help themselves. It’s pretty deep-seated in our national mindset, this belief that you can succeed.”

So let's talk about how we might solve this.  As readers of this blog know, not all taxes are created equal: the ones we rely on currently do have a tendency to quash initiative and choke the economy.   But that doesn't mean that the same is true of all taxes.  The taxes that are exceptions to that rule, though, turn out to be ones which don't favor the few, and whose utilization could reduce poverty greatly. 

The powers that be don't want to touch a system that works satisfactorily for them, and so all we're likely to hear about is the so-called "FairTax," which would greatly reduce taxes for our highest income people and increase them for most of the rest.

SNAFU?  Yes.  FUBAR?  No.  

But it is time to move toward implementation of Henry George's remedy.  Start by reading his books, "Progress & Poverty" and "Social Problems" and some of his speeches.  You'll come away newly educated and hopeful.  You'll know why we have poverty, and how to end it.  You'll know why our economy is limping so badly, and how to fix it.  You'll know why we experience booms and busts, and how we can prevent them through radical tax reform -- that is, tax reform that goes to the root of the problem.

Not FUBAR.  There IS a solution.

Time to simplify ... and then end ... the federal income tax

And I do not advocate replacing the federal income tax with a tax on sales, which is what most people who object to the income tax seem to see as our only (and therefore their best) option.  (They call it the "FairTax" but I can't figure out who it is fair to.  It is certainly favorable to our highest income people, but I don't think it is fair to anyone -- or good for our economy.)

Who among you fills out his or her own income tax forms with simply pencil and paper and calculator?  Who among you does a relative's tax filing that way?

When people who are completely able -- and very motivated! -- to hire the very best tax accountants cannot manage to file a complete and accurate tax return, it is clearly time to simplify our tax code.  That is the right first step, and ought to happen rather quickly, with the understanding that the replacement will be a temporary one.

There is a far better tax base available to us, and we ought to be moving rapidly to adopting it.  No, not the so-called FairTax -- that's the last thing the bottom 95% of us, or our economy, need.  

What ought we to tax?  Let's eliminate the things we ought not to tax.  When we tax something created by humans, we get less of it.  That's the law of supply and demand at work.

We shouldn't tax labor.  We shouldn't tax activities which create jobs.  We shouldn't tax buildings.  We shouldn't tax sales.  We shouldn't, for that matter, place the costs of healthcare on employers.  What's the line ... no good deed will go unpunished?

Adam Smith provided us wise guidelines in how to judge a tax.  How many of our legislators know them?  (How many legislators think that the more important guideline is what best suits their largest contributors?)  How many of our taxpayers, even those who were economics majors -- or government or political science members, for that matter -- know them?  His guidelines were known as the Canons of Taxation.  You can read about them at http://www.wealthandwant.com/themes/Canons.html

We ought not to be discussing tax policy without a full discussion of each option in light of this perspective.

.

Statistics of Income: Mortgage Interest and Real Estate Taxes

I've been exploring the IRS Statistics of Income data for 2006 which permits one to download spreadsheets of data and do one's own calculations on the data.  I've stumbled across some data that tickles my Georgist curiosity.   The tables break returns out by AGI (not the greatest option in the world -- a lot of income disappears before that point) but the observations are still of interest.

Table 2.1 looks at only returns that itemize deductions, 49.2 million returns out of the total 138.4 million filed (35.5%), which are reported on Table 1.2.  I'll use the column numbers provided in the spreadsheet, since I've added dozens more. Column 75 shows the total Home Mortgage Interest deducted as $443 billion, and Column 66 shows the Real Estate Tax deducted as $156 billion -- 35% the amount paid in interest.  39.8 million returns deducted interest; 42.6 million returns deducted Real Estate Taxes.

I'm intrigued that people don't seem to mind paying large amounts of interest to a mortgage lender, for the privilege of paying off the previous owner of their home, but balk at paying roughly 1/3 as much to the community which provides the services which make that home and community a good place to live! 

Further, the federal taxpayers who itemize deducted $265 billion in sales tax and state/local income taxes.  So they deducted a total of $421 billion in taxes, and interest of $443 billion.

A 2006 Federal Reserve Board study found that for the top 46 metro markets, land value represented 51% of the value of single family homes in 2004.   Applying that percentage to the mortgage interest amount deducted, we could say that $222 billion of mortgage interest was deducted that went to paying the interest on land the taxpayer purchased from someone else, and the other $222 billion went for paying for the house on that land.

If we accept that state and local government costs $421 billion, wouldn't we rather be paying $222 billion in interest to finance the purchase of the houses we live in, plus $421 billion in taxes on land value, and not pay either principle to the seller or interest to the lender for the land value?

Susan Pace Hamill: The Vast Injustice Perpetuated by State and Local Tax Policy

Hamill-HofstraSubmission.pdf (application/pdf Object). or http://ssrn.com/abstract=1272155

Susan Pace Hamill, one of my heroes, has published a new paper in the Hofstra Law Review, and while I share her concern for the poor and for economic justice, and I respect her scholarship, I think she's missing the most important questions!

Here's the abstract; the emphasis is mine:

State and local tax policy is one of the most important areas of public policy affecting the lives of the most powerless and vulnerable segments of the population – children from low income families. Focusing on the funding of primary and secondary education, especially in high poverty school districts, and the scheme for allocating the tax burden, this article empirically proves that all fifty states have unjust state and local tax policy, with thirty-one states inflicting an extreme level of injustice on poor children and their families. This article argues that the people in most states, as well as their political leaders, are compelled to reform state and local tax policy because they claim to practice Christianity or Judaism, and, in addition to being unjust under secular-based ethical models, their state and local tax policy also violates the moral principles of Judeo-Christian ethics. This article also argues that the moral context of a faith-based appeal offers the best chance to inspire people to support tax policy, requiring greater levels of sacrifice from wealthier Americans, a group that must be part of the reform effort in order to change the state and local tax picture from a vast sea of injustice to a tool of justice protecting our most vulnerable and powerless citizens.

I would counter that our tax policies should not require "greater levels of sacrifice" from anyone.  But Professor Hamill, like 99% of the rest of the people who think about public finance and economic justice, seem to be stuck in a box, and it is the wrong box!

Dumbest Thing Voters Did

A friend of mine named Wendell Fitzgerald posted a wonderful comment under that title to an OpEdNews article at http://www.opednews.com/articles/California-s-Legislators-a-by-Sandy-Sand-081228-553.html entitled "California's Legislators and Voters are Among the Dumbest in the Land."  With his permission, I am posting it in its entirety.  (The bolding is mine.)

The most truly stupid thing California voters did a long time ago which is slowly killing the State and underlies everything Sandy is saying is voting for Proposition 13 back in 1978.  The only proper source of revenue to pay for local and state services (physical infrastructure in particular) is to assess against the economic value that those expenditures engender.  All public expenditure and most obviously in the case of expenditure for physical infrastructure results in increasing land values. They do not increase the value of improvements but land value only.  All economists agree.

The appropriate source of revenue to pay for public services, therefore, is to assess against the privately held values public expenditures produce and increase.  That value is land value.  The property tax is the only tax that directly taxes land value.  In that regard, the property tax merely takes back for community use to pay for community provided services the value the community gives to land.  This is the epitome of economic justice.  Unfortunately the property tax is deeply flawed in that it also taxes the value of improvements the value of which is not increased by public services but compared to every other tax that by definition has to fall on labor and capital, the property tax even as flawed as it was/is contains the only just and economically neutral form of taxation there is. The tax on community created land value.

Landlording in NYC: "We don't pay taxes, only the little people pay taxes."

There was an interesting blog post on the NYT website yesterday, entitled "Gotham Book Mart Holdings are Given to Penn."  I found it interesting because it deals with a specialized business which existed in NYC for decades: a bookstore specializing in antiquarian books.

It was most recently housed in a building at 16 East 46th Street, between Fifth Avenue and the top of Grand Central Terminal.  The article says that two "benefactors" had bought the building in ~2004 for $5.2 million and leased it to the owner of the bookstore for $51,000 per month.  The implication is that the $51,000 monthly rent was a bargain.

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater -- The Inspired Economist

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater -- The Inspired Economist.

I'm going to take the liberty of sharing with you a post which I wish I'd written.  It is by Fred Etchevery:

Madoff Greatest Ponzi Scheme? Real Estate Magnitudes Greater.

Written by Fred Etcheverry | Published on December 22nd, 2008

Bernard Madoff was arrested December 12, 2008 for an alleged $50 billion investor fraud and released on $10 million bail. While the press heralds this as the biggest ponzi scheme in history, it’s a pittance compared to the real estate schemes that have created the present financial crisis.

Like Madoff’s scheme, the house market became dependent on a steady price increase. Buyers were willing to pay high prices with the expectation that they could later sell for a profit.

Eventually, without substantial inflation, houses had to become unaffordable. House prices had reached levels that often required most of a household’s income. Subprimes were just a frantic attempt to continue this pyramid. Like every ponzi scheme, some means must be found to get more money from new “investors” to payoff old.

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.

Mason Gaffney: "The Great Crash of 2008" -- and how we can dig out and head off the next one

This is one of several things I've been meaning to post here for weeks.  It was written in July, and has been making the rounds in Georgist circles -- and beyond -- ever since.  Shorter versions of it have been published in some newspapers, but I think it worth sharing here in its entirety.  You can find more of Mase's writings on his website, at http://www.masongaffney.org/, on the Schalkenbach foundation website, and at Wealth and Want.   

Relatedly, take a look at the November issue of Harper's Magazine, in particular the article by Michael Hudson, entitled "Tax the Land."

If you have contacts within the incoming administration, I hope you'll share this piece with them.  It provides a means to get ourselves out of our current economic crisis, and, equally important, prevent it from happening again.

Here beginneth:

THE GREAT CRASH OF 2008
Mason Gaffney

This crash is The Big One; it has signs of becoming a Category 5. How do we know? We’ve “been there and done that” so many times before, roughly every 18 years over the last 800 or more. Major wars and, rarely, plagues have broken the rhythm, along with the little ice age, reformation and counter-reformation, political revolutions and reactions, the rise of nation-states, the enclosure movement, the age of exploration, massive European imports of stolen American gold, the scientific and industrial revolutions, the Crusades, Mongol and Turkish invasions, and other upheavals. Yet, the endogenous cycle keeps returning, as soon as we find peace, and economic life returns to its even tenors. What President Warren Harding famously called “normalcy” soon evolved into another boom and a shocking bust, as so often before. Calm and routine prosperity has never been man’s lot for long: it somehow leads to its own downfall, cycle after cycle.

Homer Hoyt published his classic 100 Years of Land Values in Chicago, 1833-1933, in December, 1933. He covered in fine detail the 5 major cycles that crested and crashed in 1837, 1857, 1873, 1893, and 1926-29. At the end he generalized “The Chicago Real Estate Cycle”, a  regular rhythm of boom and bust with the same features in the same sequence. The boom sets us up for the bust. He could have omitted the limiting word “Chicago”, its cycles were synchronized with national waves recorded by other scholars like Arthur H. Cole, Philip Cornick, Lewis Maverick, Frederick Lewis Allen, Harry Scherman, Carter Goodrich, Ernest Fisher, Homer Vanderblue, Herbert Simpson, and others — surprisingly few others, in fact. Alexander Field has recently reviewed much of this literature, but held back from seeing cycles in the present or future.

It is uncanny how the latest boom tracks the events that Hoyt recorded and generalized. There was “an increase in rents, building ..., and subdivision ..., each of which was carried in turn to speculative excess, and each of which interacted upon the others and upon land values to generate and maintain the boom psychology”. The cycle, Hoyt continued, is “the composite effect ... of a series of forces that ... communicate impulses to each other in a time sequence, ... in a definite order” (p. 369).

High-Income Households ... some additional SCF data, relevant to Obama's SS tax options

A Note: What is the Appropriate Tax-Base for President-Elect Obama's High-Income Household Tax? by David P. Bernstein.

Here's the abstract for a paper recently posted to SSRN at http://ssrn.com/abstract=1296188

President-elect Obama has proposed taxing high-income individuals and using the funds to improve the solvency of the Social Security and Medicare Trust funds. Existing taxes used to fund Social Security and Medicare have only been applied to wages. Current proposals have been vague about what type of tax base might be used in the new tax. This note utilizes data from the Survey of Consumer Finances to compare potential advantages and disadvantages of a wages-only tax base proposal to a broader tax base proposal. Four different tax base options,

• broad income over $250,000,
  
• wages over $250,000,
  
• broad income over $500,000 and
  
• wages over $500,000
  

are considered. The results presented here indicate the tax base (taxable income) on broadly defined household income over $500,000 could be 28 times larger than the tax base on wages over $500,000. ($737 billion compared to $26 billion.) The tax base on broadly defined household income over $250,000 is $1,134 billion compared to a tax base of $460 billion for household wages over $250,000. The broad income tax base allows for lower marginal tax rates, lower reductions in labor force participation among two-income households, and less substitution between wages and other forms of compensation than the wage-only tax base.

Let me lay that out.

• Aggregate household wage income over $250,000 of households with wages over $250,000 is $460 billion.  That is the total of wages if we exempt the first $250,000 of wages.  That's 2.5% of the population
• Aggregate household income wage income over $500,000 of households with wages over $500,000 is $26 billion. That is the total of wages if we exempt the first $500,000 of wages.
• Aggregate broadly defined household income over $250,000 of households with income over $250,000 is $1,134 billion. That is the total of income if we exempt the first $250,000 of income of any kind.
• Aggregate broadly defined household income of households with income over $500,000 is $737 billion. That is the total of income if we exempt the first $500,000 of income of any kind.  That's 0.8% of the population

Wealth Concentration, Income Concentration, and Ups & Downs in Consumer Spending

It occurs to me that if more of us had more money in our pockets and our portfolios, consumer spending might not be so seriously affected when the economy catches a cold.

But then again, if we shared justly among ourselves that which ought to be shared among all of us, the economy might not catch cold so much and would be pretty well inoculated against pneumonia.

Stock Market Gyrations and Gun Purchases

ABC News reported this evening that gun sales had jumped significantly since Tuesday's election, because many people think that the new administration and/or Congress will seek to limit gun sales.

This led me to wonder whether some significant part of the recent gyrations in the stock market might be a function of an expectation that the new administration will raise capital gains taxes from the current low rates.   If it is true that there are significant unrealized capital gains in non-retirement accounts, and not a whole lot of cash in retirement accounts, there may be far more sellers than buyers.

You might open this post in another window:Those Shareholders who are being wiped out ... who are they? - or, "How's it trickling?" and also take a look at Wealth Concentration Tables from 2004 SCF: 50-40-5-4-1

If we look at holdings of Stocks (line 08), Non-Money-Market Mutual Funds (line 09) and Retirement Assets (Line 10), by wealth quantile, here's what we see for 2004: (trillions of dollars)
.................. Stocks ....... NMMMF ..... Retirement Assets   ... Ret Assets as Pct of Holdings
Bottom 50% .       21 ............     23 ..........        226  .................84%
Next 40% .....    382 ............    564 .........      2,587 ................. 73%
Next 5% ......    375 ............    332 .........      1,321 ................. 65%
Next 4% ...... 1,045 ............ 1,016  ........      1,701 ................. 45%
Top 1% ....... 1,888 ...........  1,169 .........         917 ................. 23%
Total ..........3,711 ...........  3,101 .........      6,752 ................. 50%

The folks who have holdings of individual stocks and non-money market mutual funds in retirement accounts don't have enough to buy up all that those who hold their stocks and mutual funds in non-retirement accounts might choose to sell before anticipated increases in capital gains taxes.  They certainly don't have enough cash sitting around to buy up the stock that the top 5%, or even just the top 1%, might put up for sale if they were concerned about a change in tax laws.  [For an estimate of holdings of unrealized capital gains, see "Capital gains and wealth" in the SCF study Currents & Undercurrents: Changes in the Distribution of Wealth, 1989-2004, particularly for the top 1%.] 

Capital gains are taxed at a maximum of 15%, and the next president may raise that to 20%, a 33% increase, for SOME taxpayers.   Some sources say that the rate might be as high as 25% -- a 67% increase.  Might that be enough to cause some who hold stocks and mutual funds in non-retirement accounts to choose to sell?  Possibly. 

Keep in mind, however, that many kinds of capital don't appreciate. Buildings depreciate.  Cars depreciate.  Machines depreciate -- even with the best of maintenance.  What appreciates?  Something that isn't "capital": the classical economists called it LAND.  Not just sites, but also natural resources and many other things not of human production.  And through our laws on residential property appreciation and 1031 exchanges, we exempt much of the appreciation in land from taxation.  To our detriment.  But that's another story.

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.

That acre in midtown Manhattan: $800 million -- as a teardown!

I don't know how reliable the estimates involved are, but this article from a Pakistan website came across a google alert today.  The property is a 1-acre teardown within a short walk of Manhattan's Grand Central Terminal: 

Roosevelt Hotel to be sold out Naveed Miraj ISLAMABAD: The government has finally decided to sell the famous PIA-owned Roosevelt Hotel in a bid to add some foreign exchange to the national exchequer and has asked the Privatization Commission to arrange open bidding to this end. The commission hopes to get a minimum offer of eight hundred million US dollars as compared to two hindered million dollars the Shaukat Aziz-led government had expected for the hotel located in the busiest commercial area of Manhattan in New York. The previous government was in haste to sell off the hotel apparently to oblige some of its blue-eyed officials but shelved its plan following the Supreme Court's ruling in the Pakistan Steel privatisation case. In the wake of the current economic crunch, the government has decided to sell the hotel in the hope of getting handsome foreign exchange.

If you are one who thinks that land rent -- the value which the land itself would rent for each year -- is not a large enough tax base to provide much in the way of revenue, consider that this single acre, taxed annually at 5% of its proposed selling price, could provide $40 million each year in income to support the spending needs of NYC, NYS and the federal government.   I don't know what NYC is collecting in property taxes on land and buildings, but it isn't much -- which is part of why the asking price can be so high.

Think what it would mean to shift $40 million worth of taxation off wages, off sales, off buildings! 

PIA is the airline of Pakistan.

See previous posts about this site at That block in Manhattan ... and Hotel Roosevelt For Sale at $1 Billion

Spreading the Wealth: Some kinds of wealth OUGHT to be spread!

One candidate speaks of spreading the wealth.  The other derides the notion as socialism.  But I suspect that neither of them have read, or thought deeply, or discussed in any context what sorts of wealth OUGHT to be spread around, and what sorts OUGHT NOT to be spread?

Not all wealth is the same.  We can divide it first into that which is created by individual or corporate human effort and that which is provided by nature or by the workings of the community as a whole. The former can rightly be privatized.  The latter must not be.

We all contribute to rent. Some of us get to live off it. How does this fit with the notion that we are created equal?

Rent is something most of us give little thought to, and most of those who think about it are not thinking about the sort of rent to which I refer.  The rent I'm talking about is not the payment which goes from tenant to landlord each month.

Rather, the rent to which I refer is the return to land, just as wages are the return to labor and interest is the return to capital.  And, just to expand it a bit further, "land" in this usage refers not just to the sites under our feet, but equally to the remainder of the natural creation and to that which our common investment in infrastructure and services has added to the natural creation: the access created by bridges, highways, railroads, subways, airports, river locks, etc, the value created by schools, parks, public health, courts, systems set up to respond to individual and widescale emergencies, etc.  Land includes natural resources, such as oil, water and air, the electromagnetic spectrum (those airwaves that belong to the American people); airport landing slots (where demand exceeds supply), etc.  

Rent happens.  It happens whenever more than one party wants to use a specific piece of land.  Who should benefit from it?  A small group of us? the first to arrive? Or all of us? 

How Much Oil Do We Use?

Research for a blog post below led me to an interesting page at http://politicalcalculations.blogspot.com/2008/06/how-much-oil-do-individual-americans.html which provided the statistic that on average, Americans use 2.58 gallons of oil per day per capita  This has remained remarkably consistent over the past 25 or so years. (The graph is quite interesting.)

Some thoughts about paying taxes...

I saw a comment, deep in a long thread at Daily Kos, whose topic had varied a bit from the original post:

Daily Kos: Is Palin also a tax cheat?. I don't hate taxes ... anymore than I hate paying for my food or housing. Taxes pay for services, and they are a reasonable way to provide an economy of scale we could not otherwise afford.

Continue reading "Some thoughts about paying taxes..." »

(With a nod to Mark Twain!) The OT lesson in my church today was from Exodus, about God raining bread from heaven for Moses and his people. 

In the evening quails came up and covered the camp; and in the morning there was a layer of dew around the camp. When the layer of dew lifted, there on the surface of the wilderness was a fine flaky substance, as fine as frost on the ground. When the Israelites saw it, they said to one another, "What is it?"  For they did not know what it was.  Moses said to them, "It is the bread that the LORD has given you to eat."

Can you imagine if some of us claimed the land onto which that bread had fallen as our own, and told those who wished to collect their share of that bread that they must first pay us rent for the privilege?  Can you imagine if some of us gathered it, and sold it to our fellow human beings at high prices?  Can you imagine if we permitted the landholders to charge their fellow human beings for access, and then turned around and imposed an income tax on the general community, pretty much ignoring land value in the process?

Gold-based lease could cause million-dollar rent hike for Forest City Enterprises - Cleveland.com.

It seems that there is a 12-story building, the Halle Building in downtown Cleveland, which is owned by Forest City, on a site of approximately an acre, which was bought a couple of years ago by a New York investor.  The terms of the 99-year lease created in 1912 call for the land rent to be equal to the value of 1,693.28 ounces of gold.  In 1912, that was $10,000, and over time it increased to $35,000, where it froze when FDR threw out the gold standard in 1933. The original landlord is not named in the article, but it appears that Forest City has owned the building since 1982, when the Halle department store went bankrupt.  In 2006, the NY investor, Stuart Venner, bought the land for $845,000, and sued to enforce the original 1912 land rent contract.  Today, that much gold is worth about $1.4 million.

Forest City appears to have renovated the building, and likely receives a very fine income from renting the office suites within it. Their revenue comes from several sources, all rolled up into a single payment from each tenant:

• a return that relates to the building itself and the manmade amenities it offers (capital);
• a return on the services which the buildinglord provides: building maintenance, perhaps a doorman, cleaning, trash handling, etc (labor); and
• a return which relates to the location itself (land). 

The same tenants would be willing to pay far less for identical space and amenities, if the building were 2 or 5 or 10 miles away.

Who is entitled to what? I'm not talking about contracts, or the way we've got things set up right now.  Rather, I'm talking about what's right and rational; what establishes good incentives, rewards productive effort, encourages redevelopment of prime sites, creates vibrant cities and economic justice and opportunity for all, and widely shared prosperity.

Transcript: Alaska: The Senator and the Oil Man -- NOW on PBS, August 1, 2008

HINOJOSA: The political scandal rocking Alaska has done something that was inconceivable just a couple years ago—it has unhinged the state's old boy network and opened the door for reformers.

Into the breach..... an unexpected figure. Sarah Palin, Alaska's governor.

PALIN: Good morning central Huskies:

HINOJOSA: The former beauty queen, small town mayor and mother of five is a conservative Republican who ran for office in 2006 and won, promising to clean up corruption—in her own party.

Before the elections, Palin was considered a long shot. But her plain spoken style and willingness to be tough on the oil industry has made her wildly popular here. With the VECO case constantly in the headlines Palin has already forced sweeping ethics reforms on the legislature in Juneau.

DOUGHERTY: She has a real instinct for politics and she comes in at a time when almost the entire rest of the political culture is discredited. And—you know, she doesn't speak to the chairman of the Republican Party. Because she turned him in for ethics violations when they both served on—the state commission that regulates the oil industry.

HINOJOSA: Last October, Palin proved she means business. She called law makers back to Juneau for a special session. She demanded they vote for the tax increase on big oil that they failed to pass while Bill Allen was handing out bribes in suite 604.

We caught up with Palin as the session was getting underway.

Her proposal— increase the oil profits tax rate about two and a half percent. It doesn't sound like much but with oil selling at more than 120 dollars a barrel it could add up to almost two billion dollars that oil companies will have to pay this year alone.

GOVERNOR PALIN: This is a big darn deal for Alaska. That non-renewable resource, of course, is so valuable it's being sold first at a premium by Exxon, BP, Conoco Phillips. And of course they're fighting us every step of the way when we say, "Well we wanna make sure, especially as it's being sold for a premium, that we're receiving appropriate value."

HINOJOSA: Palin may be talking tough to the industry, but like most Alaskans, she's a believer in big oil. The industry accounts for more than 85 percent of the state's tax revenues. Thanks to oil, Alaskans pay no income or sales tax. And mostly because of the royalties the oil companies pay to the state, each and every resident gets a yearly check from a special fund.

In a State like Alaska, can you in fact—really take on the power of the oil companies?

GOVERNOR PALIN: The oil companies don't own the resources. They have leases and the right to develop our resources for us. And we share a value, we're partners there, because they do the producing for us. But we own the resources.

HINOJOSA: Palin gave legislators 30 days to debate her tax proposal.

During committee hearings,— Palin's opponents—argued that higher taxes may ultimately force big oil to cut back on investments in Alaska, especially as some of the oil fields here are beginning to get tapped out.

Democrats like Representative Les Gara from Anchorage, aren't buying the industry's argument. .

GARA: Their bluff, every, single day, is that if you tax and get your fair share for the people of the state of Alaska, we'll just leave the state. As oil companies will go somewhere else. We know that's a bluff.

press release: http://www.prweb.com/releases/property_tax/assessment_limits/prweb1130504.htm
The Lincoln Institute of Land Policy in Cambridge, MA, published recently a new study entitled "Property Tax Assessment Limits: Lessons from Thirty Years of Experience."  In 44 pages, it lays out rather well the problems with California's Proposition 13 and Florida's "Save Our Homes" assessment caps, which have led to, among other things, high land and housing prices and high foreclosure rates -- the boom-bust cycle that hurts most of us and helps only the land speculators.

It doesn't speak particularly to the injustices involved, or to the virtues of a portion of the property tax -- the part that falls on land value  -- for creating a vibrant economy and a just society, which are suppressed when assessments are not up to date and consistent with market valuations, for all. This is an important omission.

Nor does it point out that utilizing the property tax allows us to avoid wage and sales taxes which deaden the economy.
It does, however, suggest some alternative forms of property tax relief -- homestead exemptions, classified tax rates, circuit breakers, and tax deferral programs -- though to my mind, it does not weigh in heavily enough in favor of the one I think it far superior to the others (the option to defer some portion of the property tax, with interest, as a lien against the property).  [For more about that, see Bill Batt's article, Property         Tax Relief Measures: Answers to the "Poor Widow " Argument -- also available in PDF here.]

What are the means by which dollars produced in America leave the US and go to other countries?  I can list a bunch of them -- I don't think my list is exhaustive, and would welcome your additions to it.

1. We buy foreign-made goods -- e.g., Wal-mart goods made elsewhere
2. We buy foreign-extracted natural resources -- e.g., oil
3. Foreign aid
4. War
5. Remittances by foreign-born workers to their families overseas
6. Interest on loans made by foreign lenders
7. Return on capital to foreign investors in US business
8. Rent paid to foreign owners of property in the US -- both on land itself (economic rent) and on buildings (more properly called interest)
9. Profits

Link: Mandela's B-Day message: Rich should help poor

"There are many people in South Africa who are rich and who can share those riches with those not so fortunate who have not been able to conquer poverty," Mandela said.

I hate to disagree with Nelson Mandela, but I'm going to.  The rich should not 'help' the poor.  The rich should seek justice for all, which would help the poor a great deal.  Charity is not a substitute for justice.  The rich should not be asked to share what they have created, themselves.  Rather, they should be "relieved" of that which they have stolen from the commons and that which they have stolen from others by owning their labor and by owning the land on which we all must rely.

The candidate's wife was in the news recently because there were unpaid property taxes on a condominium in San Diego, one of 3 she owns there. (Turns out that the bills had gone to the wrong address for 4+ years; they have since been paid in full.)   The story is relevant here only because it highlights one of the perverse aspects of California's Proposition 13.

Her late parents bought the new 1429 sq ft 2BR oceanfront condominium 36 years ago in 1972. In 1978, Proposition 13 rolled back the assessed valuation to its 1976 level, and since then, has capped the annual increase  in assessments at 2% per year (occasionally a bit less, when inflation was very low).  Its 2008 assessed value is $140,855.  That suggests that its 1978 valuation was about $71,000.

At Realestate.com, I selected La Jolla, condominium, 2+ BR,  2b, <1500 sq ft, and came up with 68 properties, ranging in price from $2,895,000 to a low of $319,900; the lower-priced ones were clearly a distance from the ocean.

Link: WealthandWant.com: Wealth Tables 50-40-5-4-1.

I took the data provided in the Federal Reserve Board's triennial Survey of Consumer Finances and reported in  Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004, Tables 10 and 11, and massaged the data in some ways that I don't think anyone else has.  I found some of the results exciting and interesting, and think others might too.   My results show -- not surprisingly, but very dramatically -- that it is not so much that poorer people have fewer kinds of assets, but that even those who possess the assets have far less each, on average, than do the top 1%ers, or even the next 9%ers.

Link: Tax Analysts: The Price of Civilization.

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

The third paragraph says

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

Bill Gates has moved on to his second career, using a large share of his -- and Warren Buffett's -- accumulated funds -- $30 to $40 billion -- to make a difference in the world.  I've got some thoughts about the options he has chosen, and some alternatives. 

He seeks to cure malaria.  A worthy goal. Nothing wrong with that. Success would remove a cause of human suffering.  But we ought to be conscious of the side effects of such measures.   And if the goal is to reduce human suffering, then something more needs to be done, above and beyond the things Bill Gates proposes, the things the Millenium Development Goals propose, the things Jeffrey Sachs proposes. 

That's the tag line of a commercial appearing on news programs. I'm sure I'm not the first blogger to be troubled by the attempt to suggest that ownership of oil companies is broadly middle class.

The two ads I've seen are titled "Who really pays when Congress taxes oil companies?" and "Do you own an oil company?"

David Cay Johnston is a good journalist and a good writer, and I think he has both a good mind and a fine intellect, and a love for his fellow human beings.  He is well read, a good researcher, and shares what he finds with  his readers.  But I have come to think that he has, at minimum, a blind spot.  (I'd hate to think that it was blinders producing what I'll describe below.)

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

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

I was excited by a couple of statements -- 

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

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

link: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/18/AR2008061801173.html
These paragraphs caught my eye ...

Luke Russert said that whenever he did well on a school assignment, his father would yell, "Yahoo! You smoked 'em, buddy!"

He asked the crowd to imagine a special edition of "Meet the Press" this Sunday in heaven, perhaps with a debate between Alexander Hamilton and Aaron Burr, or John F. Kennedy and Barry Goldwater. He even suggested a talk on the need for a new political party involving Teddy Roosevelt, the former president who later ran unsuccessfully for president as a member of the Bull Moose party.

What was the platform of that party?  You might be surprised, both by its timeliness and by its similarity to the ideas of Henry George, who came in #2 in the 1886 NYC mayoral election in which TR was #3. (Tammany Hall won, and the circumstances would not surprise most people troubled by some of our recent national elections.)   

Link: McCain, Obama stake out divergent paths on taxes

And neither of them gets it right.  They are proposing different arrangements of the deck chairs, and while one may provide a slightly better view of the orchestra, and the other better accoustics for enjoying the music, neither of them understand either what needs to be done or why.

As I watched the coverage of the rescue and recovery efforts in China following the earthquakes, I added to my list of the benefits of community several items: building standards and building inspectors, as well as elevator inspectors.  None of these things come cheap, and they are worth every penny in a society which includes multi-story buildings, or buildings which might be subject to hurricanes or tornadoes.

The buyer of a building ought to have some assurance that it meets at least the standards of the era in which it was built, both in terms of materials and construction methods.  The elevator passenger wants some assurance that someone besides the building's owner is paying attention to the maintenance of the elevators.

But how should we pay for such things?

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

 

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

Roy Langston wrote,

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

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

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

I'm talking about its dollar valuations; "priceless" is not one of the options here  (And think about the trouble that the MasterCard ad series has gotten us into: that using credit to afford a "priceless" family experience is a wise thing to do.)

We get a lot of different valuations on the same piece of property, and it is worth looking at all of them, and understanding the differences among them and the significance of the various figures.  I'll list all the valuations I can think of, and hope you'll add others in the comments.

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

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

I received in an email recently a quote from Albert Einstein:

A clever person solves a problem; a wise person avoids it.

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

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

Link: Still on the mountaintop: Economically rational racism, by Gavin Putland

... So the key to the Promised Land is to reduce the natural rate of unemployment without creating a new class of working losers. To see how to do that, we must revisit some basic economic principles.

For a century and a half, capitalists and socialists argued about ownership of the means of production as if the assets that make up the "means of production" were all of the same kind. But they're not; they fall into two distinct categories.

• In one category are the assets can be produced by private, competitive effort. For convenience I'll call these house-like assets, although they include not only houses but also other buildings, as well as movable plant and equipment.
• In the other category are those assets that cannot be produced by human effort, or at least cannot be produced by private, competitive effort. For convenience I'll call them land-like assets, although they include not only land but also other natural resources, building rights attached to land, and monopolies and privileges of all kinds.

The returns on house-like assets include

• interest, which is the price of time-preference,
• insurance, which is the reward for bearing (quantifiable) risk, and
• economic profit, which is the reward for bearing (unquantifiable) uncertainty.

Those returns are an incentive to produce house-like assets. Any tax on those returns, or on the assets themselves, reduces the incentive. Conservatives repeat this argument ad nauseam but never acknowledge that it's valid only for house-like assets.

The net returns on land-like assets are usually called economic rent. Some people prefer to call them usury. But whatever you call them, they can't be an incentive to produce anything, because no private person or corporation can produce land-like assets, while the rental values of those assets are produced not by the owners, but by the demand from prospective users.

It follows that any fraction of the rental value of a land-like asset can be diverted into the public treasury without discouraging any productive activity, and therefore without raising prices. In other words, taxes on the values of land-like assets are not inflationary.

An article in today's Philadelphia Daily News caught my eye.  Philadelphia is home to several fine universities, some excellent medical schools and teaching hospitals, fine museums, Constitution Center and the birthplace of two of my favorite people, one in the mid 20th century, the other in the mid 19th century.  I visit its suburbs every week, and  have a sense of knowing the territory from having grown up in those suburbs.

The article, entitled Philadelphia targets one of its toughest problems, says, in part, 

Only 14 percent of city residents hold a bachelor's degree, according to the 2005 study "Graduate! Philadelphia: The Challenge to Complete," by the Philadelphia Workforce Investment Board and the Economy League of Greater Philadelphia.

In Boston, that rate is 25 percent; in Seattle, it's 36 percent.

Philadelphia's college attainment rate puts it at 92nd among the 100 largest cities in the country --€” scraping the bottom.

In fact, in Philadelphia --€” unlike Boston, Chicago or Washington, D.C. --€” there are more people who have started college and dropped out than there are residents who actually hold a four-year bachelor's degree.

What could be behind those statistics? 

I came across some obituaries for Joseph Juran, who died recently at 103.  Here are the first two paragraphs of the Guardian's obit:

Joseph Juran, who has died aged 103, will be remembered as the first management guru whose name is best associated with "quality". His distinctive contribution lay in expanding the statistical conception of quality so that it became an essential resource for management. He adapted the 19th-century statistical tool known as the Lorenz Curve to make it a manufacturing aid to identify clusters of defects in the production process. By integrating it with the 19th-century statistics-based Pareto's "80/20" Law, he eliminated random searching for the majority of defects, not only saving time but reducing waste.

The translation of Pareto's Law that he coined was that 80% of problems occur in only 20% of activities. This Juran/Pareto law of identifying the "vital few" (the 20%) has been applied to many functions of management since Juran gave it application: the most widely accepted formula it has generated is that 80% of results are the consequence of 20% of total activities (for example, a popular interpretation is that 80% of profits come from 20% of customers).

I had occasion to look up the 2008 Federal Poverty Guideline data the other day, and thought it worth sharing a few observations that might give one pause when considering poverty statistics.  The Guideline is one of two measuring sticks (the Census Bureau's Threshold being the other) which are used to gauge poverty.  The Guideline is usually used for eligibility for programs, the Threshold for as a yardstick for judging a household's income in relation to poverty; the Census Bureau is careful to state that it is merely a statistical measure and has no relationship to income adequacy.  The Thresholds are a bit more complex in structure than the HHS Guideline, but are substantially the same figures.

For 2008, a family of four is judged to be in poverty if their income is below $21,200, anywhere in the continental US.  A single individual is judged to be in poverty if their income is below $10,400, and from there, $3,600 is added for each additional family member.

Where in America is an income of $21,200 an even minimally adequate income for a household of four people of any age?

Link: Jay Nordlinger on Impromptus on National Review Online.

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

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

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

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

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

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

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

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

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

A 21st Century Georgist in the Revised Common Lectionary

(With a nod to Mark Twain!) The OT lesson in my church today was from Exodus, about God raining bread from heaven for Moses and his people. 

In the evening quails came up and covered the camp; and in the morning there was a layer of dew around the camp. When the layer of dew lifted, there on the surface of the wilderness was a fine flaky substance, as fine as frost on the ground. When the Israelites saw it, they said to one another, "What is it?"  For they did not know what it was.  Moses said to them, "It is the bread that the LORD has given you to eat."

Can you imagine if some of us claimed the land onto which that bread had fallen as our own, and told those who wished to collect their share of that bread that they must first pay us rent for the privilege?  Can you imagine if some of us gathered it, and sold it to our fellow human beings at high prices?  Can you imagine if we permitted the landholders to charge their fellow human beings for access, and then turned around and imposed an income tax on the general community, pretty much ignoring land value in the process?

Gold-based lease could cause million-dollar rent hike for Forest City Enterprises

Gold-based lease could cause million-dollar rent hike for Forest City Enterprises - Cleveland.com.

It seems that there is a 12-story building, the Halle Building in downtown Cleveland, which is owned by Forest City, on a site of approximately an acre, which was bought a couple of years ago by a New York investor.  The terms of the 99-year lease created in 1912 call for the land rent to be equal to the value of 1,693.28 ounces of gold.  In 1912, that was $10,000, and over time it increased to $35,000, where it froze when FDR threw out the gold standard in 1933. The original landlord is not named in the article, but it appears that Forest City has owned the building since 1982, when the Halle department store went bankrupt.  In 2006, the NY investor, Stuart Venner, bought the land for $845,000, and sued to enforce the original 1912 land rent contract.  Today, that much gold is worth about $1.4 million.

Forest City appears to have renovated the building, and likely receives a very fine income from renting the office suites within it. Their revenue comes from several sources, all rolled up into a single payment from each tenant:

• a return that relates to the building itself and the manmade amenities it offers (capital);
• a return on the services which the buildinglord provides: building maintenance, perhaps a doorman, cleaning, trash handling, etc (labor); and
• a return which relates to the location itself (land). 

The same tenants would be willing to pay far less for identical space and amenities, if the building were 2 or 5 or 10 miles away.

Who is entitled to what? I'm not talking about contracts, or the way we've got things set up right now.  Rather, I'm talking about what's right and rational; what establishes good incentives, rewards productive effort, encourages redevelopment of prime sites, creates vibrant cities and economic justice and opportunity for all, and widely shared prosperity.

PBS's NOW, 8/1/08: Alaska: Governor Palin & Oil Resources -- Who Do They Belong To?

Transcript: Alaska: The Senator and the Oil Man -- NOW on PBS, August 1, 2008

HINOJOSA: The political scandal rocking Alaska has done something that was inconceivable just a couple years ago—it has unhinged the state's old boy network and opened the door for reformers.

Into the breach..... an unexpected figure. Sarah Palin, Alaska's governor.

PALIN: Good morning central Huskies:

HINOJOSA: The former beauty queen, small town mayor and mother of five is a conservative Republican who ran for office in 2006 and won, promising to clean up corruption—in her own party.

Before the elections, Palin was considered a long shot. But her plain spoken style and willingness to be tough on the oil industry has made her wildly popular here. With the VECO case constantly in the headlines Palin has already forced sweeping ethics reforms on the legislature in Juneau.

DOUGHERTY: She has a real instinct for politics and she comes in at a time when almost the entire rest of the political culture is discredited. And—you know, she doesn't speak to the chairman of the Republican Party. Because she turned him in for ethics violations when they both served on—the state commission that regulates the oil industry.

HINOJOSA: Last October, Palin proved she means business. She called law makers back to Juneau for a special session. She demanded they vote for the tax increase on big oil that they failed to pass while Bill Allen was handing out bribes in suite 604.

We caught up with Palin as the session was getting underway.

Her proposal— increase the oil profits tax rate about two and a half percent. It doesn't sound like much but with oil selling at more than 120 dollars a barrel it could add up to almost two billion dollars that oil companies will have to pay this year alone.

GOVERNOR PALIN: This is a big darn deal for Alaska. That non-renewable resource, of course, is so valuable it's being sold first at a premium by Exxon, BP, Conoco Phillips. And of course they're fighting us every step of the way when we say, "Well we wanna make sure, especially as it's being sold for a premium, that we're receiving appropriate value."

HINOJOSA: Palin may be talking tough to the industry, but like most Alaskans, she's a believer in big oil. The industry accounts for more than 85 percent of the state's tax revenues. Thanks to oil, Alaskans pay no income or sales tax. And mostly because of the royalties the oil companies pay to the state, each and every resident gets a yearly check from a special fund.

In a State like Alaska, can you in fact—really take on the power of the oil companies?

GOVERNOR PALIN: The oil companies don't own the resources. They have leases and the right to develop our resources for us. And we share a value, we're partners there, because they do the producing for us. But we own the resources.

HINOJOSA: Palin gave legislators 30 days to debate her tax proposal.

During committee hearings,— Palin's opponents—argued that higher taxes may ultimately force big oil to cut back on investments in Alaska, especially as some of the oil fields here are beginning to get tapped out.

Democrats like Representative Les Gara from Anchorage, aren't buying the industry's argument. .

GARA: Their bluff, every, single day, is that if you tax and get your fair share for the people of the state of Alaska, we'll just leave the state. As oil companies will go somewhere else. We know that's a bluff.

new Lincoln Institute Study -- Property Tax Assessment Limits: Lessons from 30 Years of Experience

press release: http://www.prweb.com/releases/property_tax/assessment_limits/prweb1130504.htm
The Lincoln Institute of Land Policy in Cambridge, MA, published recently a new study entitled "Property Tax Assessment Limits: Lessons from Thirty Years of Experience."  In 44 pages, it lays out rather well the problems with California's Proposition 13 and Florida's "Save Our Homes" assessment caps, which have led to, among other things, high land and housing prices and high foreclosure rates -- the boom-bust cycle that hurts most of us and helps only the land speculators.

It doesn't speak particularly to the injustices involved, or to the virtues of a portion of the property tax -- the part that falls on land value  -- for creating a vibrant economy and a just society, which are suppressed when assessments are not up to date and consistent with market valuations, for all. This is an important omission.

Nor does it point out that utilizing the property tax allows us to avoid wage and sales taxes which deaden the economy.
It does, however, suggest some alternative forms of property tax relief -- homestead exemptions, classified tax rates, circuit breakers, and tax deferral programs -- though to my mind, it does not weigh in heavily enough in favor of the one I think it far superior to the others (the option to defer some portion of the property tax, with interest, as a lien against the property).  [For more about that, see Bill Batt's article, Property         Tax Relief Measures: Answers to the "Poor Widow " Argument -- also available in PDF here.]

Transfers of Wealth Overseas

What are the means by which dollars produced in America leave the US and go to other countries?  I can list a bunch of them -- I don't think my list is exhaustive, and would welcome your additions to it.

1. We buy foreign-made goods -- e.g., Wal-mart goods made elsewhere
2. We buy foreign-extracted natural resources -- e.g., oil
3. Foreign aid
4. War
5. Remittances by foreign-born workers to their families overseas
6. Interest on loans made by foreign lenders
7. Return on capital to foreign investors in US business
8. Rent paid to foreign owners of property in the US -- both on land itself (economic rent) and on buildings (more properly called interest)
9. Profits

Mandela's B-Day message: Rich should help poor

Link: Mandela's B-Day message: Rich should help poor

"There are many people in South Africa who are rich and who can share those riches with those not so fortunate who have not been able to conquer poverty," Mandela said.

I hate to disagree with Nelson Mandela, but I'm going to.  The rich should not 'help' the poor.  The rich should seek justice for all, which would help the poor a great deal.  Charity is not a substitute for justice.  The rich should not be asked to share what they have created, themselves.  Rather, they should be "relieved" of that which they have stolen from the commons and that which they have stolen from others by owning their labor and by owning the land on which we all must rely.

Cindy McCain's San Diego condo (the oldest of their 3)

The candidate's wife was in the news recently because there were unpaid property taxes on a condominium in San Diego, one of 3 she owns there. (Turns out that the bills had gone to the wrong address for 4+ years; they have since been paid in full.)   The story is relevant here only because it highlights one of the perverse aspects of California's Proposition 13.

Her late parents bought the new 1429 sq ft 2BR oceanfront condominium 36 years ago in 1972. In 1978, Proposition 13 rolled back the assessed valuation to its 1976 level, and since then, has capped the annual increase  in assessments at 2% per year (occasionally a bit less, when inflation was very low).  Its 2008 assessed value is $140,855.  That suggests that its 1978 valuation was about $71,000.

At Realestate.com, I selected La Jolla, condominium, 2+ BR,  2b, <1500 sq ft, and came up with 68 properties, ranging in price from $2,895,000 to a low of $319,900; the lower-priced ones were clearly a distance from the ocean.

WealthandWant.com: The Wealth Concentration Tables

Link: WealthandWant.com: Wealth Tables 50-40-5-4-1.

I took the data provided in the Federal Reserve Board's triennial Survey of Consumer Finances and reported in  Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004, Tables 10 and 11, and massaged the data in some ways that I don't think anyone else has.  I found some of the results exciting and interesting, and think others might too.   My results show -- not surprisingly, but very dramatically -- that it is not so much that poorer people have fewer kinds of assets, but that even those who possess the assets have far less each, on average, than do the top 1%ers, or even the next 9%ers.

Tax Analysts column: The Price of Civilization

Link: Tax Analysts: The Price of Civilization.

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

The third paragraph says

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

Bill Gates: How Can He Best Use His Wealth and Influence to Help the World?

Bill Gates has moved on to his second career, using a large share of his -- and Warren Buffett's -- accumulated funds -- $30 to $40 billion -- to make a difference in the world.  I've got some thoughts about the options he has chosen, and some alternatives. 

He seeks to cure malaria.  A worthy goal. Nothing wrong with that. Success would remove a cause of human suffering.  But we ought to be conscious of the side effects of such measures.   And if the goal is to reduce human suffering, then something more needs to be done, above and beyond the things Bill Gates proposes, the things the Millenium Development Goals propose, the things Jeffrey Sachs proposes. 

Do you own an oil company?

That's the tag line of a commercial appearing on news programs. I'm sure I'm not the first blogger to be troubled by the attempt to suggest that ownership of oil companies is broadly middle class.

The two ads I've seen are titled "Who really pays when Congress taxes oil companies?" and "Do you own an oil company?"

David Cay Johnston doesn't get it -- yet

David Cay Johnston is a good journalist and a good writer, and I think he has both a good mind and a fine intellect, and a love for his fellow human beings.  He is well read, a good researcher, and shares what he finds with  his readers.  But I have come to think that he has, at minimum, a blind spot.  (I'd hate to think that it was blinders producing what I'll describe below.)

Democracy and Opportunity: A New Paradigm in Tax Equity

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

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

I was excited by a couple of statements -- 

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

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

Luke Russert's tribute to his father: a new political party?

link: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/18/AR2008061801173.html
These paragraphs caught my eye ...

Luke Russert said that whenever he did well on a school assignment, his father would yell, "Yahoo! You smoked 'em, buddy!"

He asked the crowd to imagine a special edition of "Meet the Press" this Sunday in heaven, perhaps with a debate between Alexander Hamilton and Aaron Burr, or John F. Kennedy and Barry Goldwater. He even suggested a talk on the need for a new political party involving Teddy Roosevelt, the former president who later ran unsuccessfully for president as a member of the Bull Moose party.

What was the platform of that party?  You might be surprised, both by its timeliness and by its similarity to the ideas of Henry George, who came in #2 in the 1886 NYC mayoral election in which TR was #3. (Tammany Hall won, and the circumstances would not surprise most people troubled by some of our recent national elections.)   

McCain, Obama stake out divergent paths on taxes - Yahoo! News

Link: McCain, Obama stake out divergent paths on taxes

And neither of them gets it right.  They are proposing different arrangements of the deck chairs, and while one may provide a slightly better view of the orchestra, and the other better accoustics for enjoying the music, neither of them understand either what needs to be done or why.

Taxes as the Price We Pay for a Civilized Society -- But What Taxes?

As I watched the coverage of the rescue and recovery efforts in China following the earthquakes, I added to my list of the benefits of community several items: building standards and building inspectors, as well as elevator inspectors.  None of these things come cheap, and they are worth every penny in a society which includes multi-story buildings, or buildings which might be subject to hurricanes or tornadoes.

The buyer of a building ought to have some assurance that it meets at least the standards of the era in which it was built, both in terms of materials and construction methods.  The elevator passenger wants some assurance that someone besides the building's owner is paying attention to the maintenance of the elevators.

But how should we pay for such things?

Is LVT the answer to all our problems?

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

 

A Few Inconvenient Truths about the Property Tax

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

Roy Langston wrote,

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

Why Smart People should shun the "FairTax" concept

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

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

How much is your home worth?

I'm talking about its dollar valuations; "priceless" is not one of the options here  (And think about the trouble that the MasterCard ad series has gotten us into: that using credit to afford a "priceless" family experience is a wise thing to do.)

We get a lot of different valuations on the same piece of property, and it is worth looking at all of them, and understanding the differences among them and the significance of the various figures.  I'll list all the valuations I can think of, and hope you'll add others in the comments.

a tax reformer does the family 1040's

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

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

The Purpose of Government

I received in an email recently a quote from Albert Einstein:

A clever person solves a problem; a wise person avoids it.

Taxes as oppression, taxes as incentives: Alabama

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

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

Still on the mountaintop: Economically rational racism

Link: Still on the mountaintop: Economically rational racism, by Gavin Putland

... So the key to the Promised Land is to reduce the natural rate of unemployment without creating a new class of working losers. To see how to do that, we must revisit some basic economic principles.

For a century and a half, capitalists and socialists argued about ownership of the means of production as if the assets that make up the "means of production" were all of the same kind. But they're not; they fall into two distinct categories.

• In one category are the assets can be produced by private, competitive effort. For convenience I'll call these house-like assets, although they include not only houses but also other buildings, as well as movable plant and equipment.
• In the other category are those assets that cannot be produced by human effort, or at least cannot be produced by private, competitive effort. For convenience I'll call them land-like assets, although they include not only land but also other natural resources, building rights attached to land, and monopolies and privileges of all kinds.

The returns on house-like assets include

• interest, which is the price of time-preference,
• insurance, which is the reward for bearing (quantifiable) risk, and
• economic profit, which is the reward for bearing (unquantifiable) uncertainty.

Those returns are an incentive to produce house-like assets. Any tax on those returns, or on the assets themselves, reduces the incentive. Conservatives repeat this argument ad nauseam but never acknowledge that it's valid only for house-like assets.

The net returns on land-like assets are usually called economic rent. Some people prefer to call them usury. But whatever you call them, they can't be an incentive to produce anything, because no private person or corporation can produce land-like assets, while the rental values of those assets are produced not by the owners, but by the demand from prospective users.

It follows that any fraction of the rental value of a land-like asset can be diverted into the public treasury without discouraging any productive activity, and therefore without raising prices. In other words, taxes on the values of land-like assets are not inflationary.

Philadelphia, its Wage Tax and its Residents

An article in today's Philadelphia Daily News caught my eye.  Philadelphia is home to several fine universities, some excellent medical schools and teaching hospitals, fine museums, Constitution Center and the birthplace of two of my favorite people, one in the mid 20th century, the other in the mid 19th century.  I visit its suburbs every week, and  have a sense of knowing the territory from having grown up in those suburbs.

The article, entitled Philadelphia targets one of its toughest problems, says, in part, 

Only 14 percent of city residents hold a bachelor's degree, according to the 2005 study "Graduate! Philadelphia: The Challenge to Complete," by the Philadelphia Workforce Investment Board and the Economy League of Greater Philadelphia.

In Boston, that rate is 25 percent; in Seattle, it's 36 percent.

Philadelphia's college attainment rate puts it at 92nd among the 100 largest cities in the country --€” scraping the bottom.

In fact, in Philadelphia --€” unlike Boston, Chicago or Washington, D.C. --€” there are more people who have started college and dropped out than there are residents who actually hold a four-year bachelor's degree.

What could be behind those statistics? 

The 80/20 Rule -- and its misapplications

I came across some obituaries for Joseph Juran, who died recently at 103.  Here are the first two paragraphs of the Guardian's obit:

Joseph Juran, who has died aged 103, will be remembered as the first management guru whose name is best associated with "quality". His distinctive contribution lay in expanding the statistical conception of quality so that it became an essential resource for management. He adapted the 19th-century statistical tool known as the Lorenz Curve to make it a manufacturing aid to identify clusters of defects in the production process. By integrating it with the 19th-century statistics-based Pareto's "80/20" Law, he eliminated random searching for the majority of defects, not only saving time but reducing waste.

The translation of Pareto's Law that he coined was that 80% of problems occur in only 20% of activities. This Juran/Pareto law of identifying the "vital few" (the 20%) has been applied to many functions of management since Juran gave it application: the most widely accepted formula it has generated is that 80% of results are the consequence of 20% of total activities (for example, a popular interpretation is that 80% of profits come from 20% of customers).

The Basis of U.S. Poverty Statistics

I had occasion to look up the 2008 Federal Poverty Guideline data the other day, and thought it worth sharing a few observations that might give one pause when considering poverty statistics.  The Guideline is one of two measuring sticks (the Census Bureau's Threshold being the other) which are used to gauge poverty.  The Guideline is usually used for eligibility for programs, the Threshold for as a yardstick for judging a household's income in relation to poverty; the Census Bureau is careful to state that it is merely a statistical measure and has no relationship to income adequacy.  The Thresholds are a bit more complex in structure than the HHS Guideline, but are substantially the same figures.

For 2008, a family of four is judged to be in poverty if their income is below $21,200, anywhere in the continental US.  A single individual is judged to be in poverty if their income is below $10,400, and from there, $3,600 is added for each additional family member.

Where in America is an income of $21,200 an even minimally adequate income for a household of four people of any age?

Closet Georgists and Georgites: Bill Buckley, and others

Link: Jay Nordlinger on Impromptus on National Review Online.

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

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

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

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

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

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

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

Landholders, windfalls, productive effort and community revenue

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

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