LVTFan's Blog

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

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

What is it about? 

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

link: 120TN0887.pdf

A few lifts:

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

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

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

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

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

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

Valuing life, and applying fiscal stimulus, and setting us all equal

If we are going to claim to value every life, and encourage every pregnant woman to bring every fetus to term, we need to acknowledge that every child born is the equal of every person already born.  Interestingly, Alaska has been doing something important in this regard, for more than 20 years.

Every man, woman and child who lives in Alaska receives an annual income from the Alaska Permanent Fund, which represents dividends from the invested proceeds of Alaska oil revenue, and which, if properly managed, will continue to provide an annual income for every Alaska long after the oil has all been tapped. And Alaska's governor has had the fortitude to increase the share of the public in Alaska's oil revenue due to the high price of oil. (See another post on the subject from a few days ago.)

(And much of Alaska's state government spending comes from oil revenues, too.)

Our oil is not the only resource that needs to be treated this way.  Urban land values can be hundreds of thousands of times the value of an acre of agricultural land.  There is an acre in Manhattan said to be worth $400,000,000 to $1,100,000,000 -- as a teardown.  If we were to tax that land value at, say, 5% per year, at $400,000,000 it would produce $20 million in income for we-the-people, relieving the need for $20 million in sales taxes, or $20 million in payroll taxes, or $20 million in income taxes.  Talk about fiscal stimulus!  Talk about a permanent tax holiday! Talk about getting the incentives right!  

Downtown Nantucket: Who Should Get the Rent?

The Billionaire and the Bookstore - The Boston Globe

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

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

David Cay Johnston: Can You Hear Opportunity Knocking?

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

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

He starts out with this:

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

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

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

NO!   

Joe Stiglitz: Turn left for growth

Joe Stiglitz: Turn left for growth
I don't necessarily come out at the same place that Joe Stiglitz does in this article, but I thought this article good and worth sharing.

Both the left and the right in the United States say they stand for economic growth. So should voters trying to decide between the two act as if they are choosing between alternative management teams?

If only matters were so easy! Part of the problem concerns luck. America's economy was blessed in the 1990s with low energy prices, a high pace of innovation, and a China offering high-quality goods at decreasing prices - all of which produced low inflation and rapid growth.

President Clinton and then-chairman of the U.S. Federal Reserve Alan Greenspan deserve little credit for this - though, to be sure, bad policies could have messed things up. By contrast, today's problems - high energy and food prices, and a crumbling financial system - have, to a large extent, been brought about by bad policies.

There are, indeed, big differences in growth strategies, which make different outcomes highly likely. For starters, growth is not just a matter of increasing GDP. Growth based on environmental degradation, a debt-financed consumption binge, or the exploitation of scarce natural resources is not sustainable. Growth also must be inclusive; a majority of citizens must benefit. Trickle-down economics does not work: An increase in GDP can actually leave most citizens worse off. America's recent growth was neither economically sustainable nor inclusive. Most Americans are worse off today than seven years ago.

But there need not be a trade-off between inequality and growth. Governments can enhance growth by increasing inclusiveness. A country's most valuable resource is its people. So it is essential to ensure that everyone can live up to their potential, which requires educational opportunities for all.

To which I would add that there are other resources -- what the classical econommists grouped together under the banner of "land " -- including not only the value of our urban land, but our natural resources and many other assets that are like land: electromagnetic spectrum (the airwaves which we say belong to the American people); water rights; airport landing slots (which the USDOT now asserts belong to the American people -- not the airlines), to name a few. 

We ought to be sharing the value of all these resources equally among all of us, collecting that value as our common treasure, rather than permitting its privatization under the theory of "finders keepers."    We ought to be financing our government spending with that value, and/or investing any excess in a fund, similar to the Alaska Permanent Fund, which pays an annual income to every man, woman and child in that state.

An education which doesn't include familiarity with that idea doesn't get us very far.  Opportunities for all means equality with respect to our natural and common resources; education is a small but important part of that.

Back to the article ...

A modern economy also demands risk-taking. Individuals are more willing to take risks if there is a good safety net. Social protection is more efficient than protectionism.

Failure to promote social solidarity can have other costs, not least of which are the communal and private expenditures required to protect property and incarcerate criminals. It is estimated that within a few years, America will have more people working in the security business than in education. A year in prison can cost more than a year at Harvard. The cost of incarcerating two million Americans - one of the highest per capita rates in the world - should be viewed as a subtraction from GDP, yet it is added on.

Perhaps the reason we have as much crime as we do is that people don't have the opportunities they should have, and, while the mechanics of why they don't are largely unknown to most of us, the effects of that deprivation are very obvious.  People who in a just society would be contributing members simply can't find their place in our current economy.

Returning to the article,

A second major difference between left and right concerns their respective perceptions of the state's role in promoting development. The left understands that the government's role in providing infrastructure and education, developing technology, and even acting as an entrepreneur is vital. In the 19th century, research at America's government-supported universities provided the basis for the agricultural revolution. More recently, the government laid the foundations for the Internet and the modern biotechnology revolutions.

The final difference may seem odd: The left now understands markets, and the role they can and should play in the economy. The right, especially in America, does not. The new right is really old corporatism in a new guise. These are not libertarians. They believe in a strong state with robust executive powers, but one used in defense of established interests, with little attention to market principles.

The list of examples is long, but it includes subsidies to large corporate farms, tariffs to protect the steel industry and, most recently, the mega bail-outs of Bear Stearns, Fannie Mae and Freddie Mac. But the inconsistency between rhetoric and reality is long-standing: Protectionism expanded under Reagan, including through the imposition of so-called voluntary export restrictions on Japanese cars.

By contrast, the new left is trying to make markets work. Unfettered markets do not operate well on their own - a conclusion reinforced by the current financial debacle. Defenders of markets sometimes admit that they do fail, even disastrously, but claim that markets are "self- correcting." During the Great Depression, similar arguments were heard: Government need not do anything, because markets would restore the economy to full employment in the long run.

Perhaps much of what the current economy needs is a shift from land monopoly capitalism to free market capitalism.  The markets might work pretty well if only we taxed that which should be taxed, and untaxed that which should not be taxed!  Efficiency would improve greatly.

But, as John Maynard Keynes famously put it, in the long run we are all dead.

But in the meantime, some of us would have accumulated the valuable toys, the ones which our fellow human beings depend on and therefore are willing to pay us for -- and we get to pass the proceeds to our own children, excluding the children of everyone else.

No government can sit idly by as a country goes into recession or depression, even when caused by the excessive greed of bankers or misjudgment of risks by security markets and rating agencies. But if governments are going to pay the economy's hospital bills, they must act to make it less likely that hospitalization will be needed. The right's deregulation mantra was simply wrong, and we are now paying the price. And the price tag - in terms of lost output - will be high, perhaps more than $1.5 trillion in the United States alone.

The right often traces its intellectual parentage to Adam Smith, but while Smith recognized the power of markets, he also recognized their limits. Even in his era, businesses found that they could increase profits more easily by conspiring to raise prices than by producing innovative products more efficiently. There is a need for strong antitrust laws.

Today, in contrast to the right, the left has a coherent agenda that offers not only higher growth, but also social justice. For voters, the choice should be easy.

Between those two options, the choice is clear -- but Georgist reforms provide a third way, a superior one to my mind -- and according to my heart as well.

We can eliminate the boom-bust cycle which plagues us -- that alone is reason enough!

Making Work Pay Enough: A Decent Standard of Living for Working Families

Link: 411710_work_pay.pdf (application/pdf Object).
The study is entitled "Making Work Pay Enough: A Decent Standard of Living for Working Families" and it comes from the Tax Policy Institute.  Like the Self Sufficiency Standard Studies, it points out that many of America's jobs simply don't pay enough to support oneself, much less to support a small family.

I found myself very disappointed by the recommendations of the study.  They lack radicalism.  They don't seek the root of the problem, so they don't find the root of the problem.   They propose programs rather than solutions.

Why are the Working Poor Poor?

One of my standing google alerts brought me this from someone's blog:

Working poor people have always existed.

Many of them are poor because they are fiscally irresponsible, the rest impoverished because of lack of financial education or opportunity.

Which leads me to ask how the millions of jobs which pay less than, say, $15 per hour would get staffed if everyone in America had financial education or opportunity.

Let's say that there are, what, 15 million such jobs out of, say, 90 million jobs in total?  One approach would be to say that everyone had to spend the first 1/6th of their working years working at jobs which only paid WP wages, before they could move on to higher paying jobs.  College graduates could, perhaps, count their college years in that calculation, and those with less education would be required to stay in WP jobs for a few more years.  But after their required years in low-wage work, they could move into the ranks of those who are no longer in WP-wage jobs. 

Renters deserve a better shake - Boston Globe

Link: Renters deserve a better shake by Nicholas Retsinas, director of Harvard's Joint Center for Housing Studies

The op-ed begins:

NOT EVERYBODY in the family tree makes it into the family portrait. Most families have ne'er-do-wells; many families crop them out.

Housing USA is like a family portrait. We see ourselves as a nation of homeowners or wannabe homeowners; and our policies, programs, and rhetoric support that image. The news focuses on the homeownership crisis: foreclosures, toxic loans, mortgage fraud, the "jingle mail" when homeowners, facing foreclosure, send keys to the lender. The major federal housing initiatives (including the Federal Housing Administration, Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System) have helped more than two-thirds of us buy into the American dream. Indeed, a few years ago policy-makers were lauding the nifty subprime mortgages marketed even to buyers with poor credit, enabling even them to own.

What about renters? One-third of all households rent - surely they are part of the American family; but policies, as well as rhetoric, have overlooked them. While the federal government has subsidized some renters (25 percent of eligible households) and the production of some "affordable" units, those subsidies pale beside the forgone tax revenues from the mortgage interest deduction, property tax deduction, and capital gains exclusion.

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

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

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

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

Probably.

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

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.]

Pragmatic Politics: Proposition 13

Link: Pragmatic Politics. A short excerpt:

"The LA Times article posited Proposition 13 as a culprit in California's current mess. The PC isn't so sure about that. The Times pointed out that some Californians have some of the lowest property taxes in the country. Well, maybe that is true. But, some don't. Anyone that bought in the last 10 years does not have cheap property taxes because house prices were outrageously high. A heck of a lot of people have bought homes in California in the last 10 years. Since Prop. 13 passed in the 1970s (we think), property tax revenues have gone up over 5-fold. Also, California has a huge sales tax (7.75%) rate, high income taxes (but that varies up and down with the economy) and voters keep passing big bond measures for everything from badly needed infrastructure projects the legislators are incapable of funding on their own to stem cell research (mostly a sad waste of money).

For crying out loud, how freaking much money does the state need? The PC does not want to be cheap, but we suspect that there is tons of money that goes into rat holes the public knows nothing about. Those rat holes probably give back not much to the state, especially if that spending is payback for "campaign contributions". After all, if the legislators can gerrymander their districts for their own personal benefit, why can't they waste tons of money for exactly the same reason?"

I have a number of thoughts about this.  First of all, there is a fair amount of expense involved in collecting wage taxes and sales taxes, over and above the excess burden and deadweight loss they impose on our economy.

Technically Speaking, Market Analysis and Theory: Saturday AM Coffee: A Plethora of Choices, for Some

Link: Technically Speaking, Market Analysis and Theory: Saturday AM Coffee: A Plethora of Choices, for Some.

What the Federal Reserve CLEARLY doesn't understand is the bifurcation in the economy between the fewer doing quite well (and screaming the loudest for relief) and the many in the Stealth Depression among the least fortunate among us. When landed gentry whisper in your ear, you respond differently than whether you listen to the wretched misery of the silent.

"Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"

<snip> 

As a physician, seeing 20-30 patients and their families daily, I see a sharp rise in anxiety, depression, frustration, and health crises directly related to the struggles experienced by 'ordinary' Americans. There is no hedonic adjustment for their pain, only pain. The Bernankes, Sterns, and Gramms of the world don't see this in their bar graphs of employment, core inflation, and mortgage applications. Those who have already reached the top of the mountain can easily overlook those who either fell off, or never got a chance to climb.

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.

Fannie & Freddie: Privatization of Gain, Socialization of Loss: Who Benefits?

Who benefits from the ways we protect Fannie and Freddie's shareholders?  The Wealth Concentration Tables on wealthandwant.com wil give you a pretty good notion.  Unless, of course, you think for some reason that Fannie and Freddie's shares are held strictly by poor widows and orphans in the bottom 90% of the wealth spectrum, different from other equity holdings. [Cut to the chase: the bottom 50% of us hold 2% of the value.  The next 40% of us hold 26% of the value.  The top 10% hold the remaining 72%]

Consider also the advice that a prudent investor should not be concentrated in a single stock or sector, particularly if one is employed in that sector, as the employees of Enron learned very publicly not all that many years ago.

So whose portfolios are we protecting when we give gifts from the commons to the shareholders of Fannie and Freddie?  The poor widow whose advisor suggested she invest in those two stocks?   Right.

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.

We All Pay for Leona Helmsley’s Bequest to Dogs - NYT

Link: Op-Ed Contributor - We All Pay for Leona Helmsley’s Bequest to Dogs - Op-Ed - NYTimes.com.  The article begins,

THE latest news from the Palace, that Leona Helmsley left instructions that her charitable bequest of as much as $8 billion be used for the care and welfare of dogs, rubs our noses in the tax deduction for charitable gifts and its common vehicle, the perpetual private foundation. Together these provide a mechanism by which American taxpayers subsidize the whims of the rich and fulfill their fantasies of immortality.

The Housing Crash and the Retirement Prospects of Late Baby Boomers

The Center for Economic and Policy Research published a study in June entitled The Housing Crash and the Retirement Prospects of Late Baby Boomers.  It is from the data source as the wealth distribution (wealth concentration) data on the wealthandwant.com website (the FRB's Survey of Consumer Finance), but limits itself to a single age cohort: those who will in 2009 be ages 45 to 54. 

It starts with the net worth, house values and mortgage balance data for that age cohort from 2004, and then considers 3 scenarios:

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.

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.)

Thoughts for Barack Obama

A friend sent me a link to a page where one can make policy suggestions to Barack Obama's campaign.  Turns out to be a thinly veiled way to harvest emails.  But maybe somewhere in the campaign, someone might actually read the suggestions.

One of the fields was a dropdown menu so one could categorize one's proposal.  I chose "economy" but made the first line of my policy proposal a list of a number of categories into which mine falls:

Issues: Economy, Energy, Environment, Ethics, Family, Infrastructure, Justice, Labor, Poverty ... and maybe even health --  

Halving US Poverty in 10 Years

A Washington think tank, the Center for American Progress, has published a strategy for halving US poverty in 10 years.  While I applaud their goal, I find it too timid and think their strategies wrong-headed.  Their analysis fails to consider why we have poverty in the first place, and proceeds to design bandaids.  If we are going to eradicate poverty, we must go to the root of the problem, and in my judgment, CfAP has not  pursued the problem to its root and thus cannot do more than attempt to trim its branches.  Pruning poverty's branches is not going to rid us of poverty.  It may move some people we acknowledge as "in poverty" to "out of poverty" as we officially define it, and perhaps they can achieve half their goal, declare victory, and call the rest of the problem intractible.

But living just above the poverty line is little better than or different from living somewhat below it, and we're kidding ourselves if we accept the poverty line as a meaningful statistic.    See this page and this page and the related pages linked there.

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.

Ross Perot, Back On the Charts

Link: David S. Broder - Perot, Back On the Charts

Ross Perot has started a new website, www.perotcharts.com, featuring graphic representations of what he sees as the most serious problems facing the US.  I share some of his concerns, but think that several additional charts would be equally relevant.

The Landed Gentry

We hear the phrase "the landed gentry" from time to time, often in the context of first-time homeowners, lyparticularly those who have bought  in a neighborhood undergoing "gentrification."

But what does it mean to be the landed gentry?  What is it that matters about being landed?  And what is "gentry"?

Why did Big Russ have to work two full-time jobs?

The tributes to Tim Russert are moving, and I'm sure many of us who follow news and politics will feel his loss, too young, for quite some time.  But as I listen, I am led to wonder whether he ever questioned why it should be that a man needed to work two full-time jobs  to support his family.

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.

Oil, Land, Water -- who among us is entitled to privatize their value?

Land, water, oil, air ... none of it is of our creation, and all of us depend on access to them.  If dollars are involved, to whom should they flow, and why?  If royalties are due, who is entitled to them? If rent happens, as it does in any place where there is a scarcity, who is entitled to it?

Is it the fellow whose land is in high demand?  Is it the fellow whose land has valuable minerals in it? Is it the fellow whose property is on a great aquifer?  Is it the great-great-grandchild of the Duke of Westminster, or of the first Caucasian settlers on a particular piece of land, or of someone to whom they sold title?   LVTfan says not. 

One Solution for Many Problems?

That was the title I chose for a short talk I gave at the "Building a New World Conference" at Radford, VA, a few weeks ago.  Here it is ... 

Golf Courses, Assessments, Property Taxes, and Nonmembers

Several articles on the topic of assessing golf courses have come to my attention in the past few days.  I've posted previously on the topic, but will start fresh here.

The first article had to do with assessments in Greenwich, Connecticut, where eight private golf clubs were seeking assessments of just $60,000 per acre.  Now that might seem like a high value to people who live in the heartland of America, but Greenwich is a place where a single-acre building lot (with or without an existing house on it) can sell for well over $1 million, and where roughly 1 in 4 residential transactions results in a teardown, often of a home which would be considered a super-luxury home nearly anywhere else.   The assessor had sought to value the land at a still-very-generous-to-the-clubbers $200,000 per acre.  (By law -- a peculiar law whose justification I don't follow, CT's assessments are to be 70% of actual value, so the $200,000 valuation would be about $285,000 -- still a very generous valuation in a town with high property values.)

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?"

 

The Price of Land in the New York Metropolitan Area

The Price of Land in the New York Metropolitan Area
by Andrew Haughwout, James Orr, and David Bedoll
at http://www.newyorkfed.org/research/current_issues/ci14-3.pdf

An interesting study was published recently by the Federal Reserve Bank of New York about the price of vacant land in the NY metro area.

It starts by citing a transaction in 2000: a 3.4 acre parcel on the southwest corner of Central Park which sold for $345 million, and whose buildings were demolished to make way for the Time Warner Center.  That's $100 million per acre.  But it certainly isn't a record, even in Manhattan.

And, yes, land value matters.  It matters quite a lot, in ways that most of us don't understand.  (As my mother would have put it, "Our educations have been neglected" -- but in this case, even those who should be teaching us can't, because their educations were lacking!)

Poverty, America's Children, and Our Future

A recent article on the NYT "most-emailed" list, entitled Can You Become a Creature of New Habits? had a paragraph which caught my attention.  It said,

Researchers in the late 1960s discovered that humans are born with the capacity to approach challenges in four primary ways: analytically, procedurally, relationally (or collaboratively) and innovatively. At puberty, however, the brain shuts down half of that capacity, preserving only those modes of thought that have seemed most valuable during the first decade or so of life.

Are you going to be part of the problem, or part of the solution?

This was the headline of an email that came into my inbox today.   And it dawned on me that it is a fine angle from which to view the benefits of land value taxation. 

A Few Inconvenient Truths about the Property Tax

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

Roy Langston wrote,

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

Why Smart People should shun the "FairTax" concept

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

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

a tax reformer does the family 1040's

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

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

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.

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

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

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

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

Now there is a proposal to add insult to injury:

Contra Costa Times OpEd -- End the property tax

Link: Richard S. Colman: Your Turn -- End the property tax - ContraCostaTimes.com.

A homeowner in California is complaining about the injustice of Proposition 13.  He has owned his home for 9 years, and is paying 650% of what the fellow from whom he bought it was paying in property taxes.  His solution?

The answer is simple: it's time to get rid of the property tax altogether. Perhaps a tiny income tax would be an acceptable substitute.

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.

Getting Poverty Wrong, by Steven Malanga, City Journal 3/21/08

Link: Getting Poverty Wrong by Steven Malanga, City Journal 21 March 2008.

Malanga argues that the solution to poverty is getting people to marry before they have children.  He cites Census poverty statistics which show that a far larger proportion of children who live in single-parent families are in poverty, and that relatively few in two-parent families are in poverty.

Revitalizing older cities

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

San Luis Obispo County (CA): Governor tells SLO County that 'nothing is sacred' when it comes to budget cuts

Link: San Luis Obispo County’s website | 03/26/2008 | Governor tells SLO County that 'nothing is sacred' when it comes to budget cuts.

Local officials hoping to see area state parks protected from budget cuts were informed by Gov. Arnold Schwarzenegger this morning that nothing is sacred as he has proposed 10 percent across-the-board cuts to make up a growing state deficit. ...

Thousands of layoff notices have been sent to teachers across the state, including some in San Luis Obispo County, in anticipation of the state budget cuts. And seven local state parks have been proposed for closure. ...

Is LVT the answer? It depends what the question is.

The title for this post was prompted by an article in the NYT about people not raised on farms deciding to become farmers, particularly in places near large cities.  It seems that local food was said to be the answer to a number of questions.  I'm generally in favor of it, but I'm not sure it is the answer to as many questions as its supporters claim.  That doesn't make "local food" a bad thing; just not the answer to as many questions as it might seem.

But the title for this post sprang to mind.  It seems to me that Land Value Taxation is the answer to a lot of very important questions.

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?