LVTFan's Blog

Saving for Retirement

It is worth considering that one of the reasons that people are having more difficulty saving for retirement now than they did, say, 10 or 20 or 30 years ago, is that housing costs are absorbing a larger portion of their wages than used to be the case.

And I'm rather sure that if one looked at the sum of their housing and commuting costs as a percentage of income, that, too would have risen significantly.

The old rule of thumb was to spend no more than 1/4 of one's income on housing.  I assume that was construed to include not just the rent or mortgage payment, but also property taxes, condo or association fees, homeowner's or renter's insurance, heating fuel, and utilities such as electricity, water, sewer and telephone.  That was probably before TV was a monthly bill, and before an internet connection became, if not essential, nearly so.  And it may have been before borrowing more than 80% of the purchase price became common, adding in costs for private mortgage insurance, costing 0.32% to 1.2% of the loan principle.  It doesn't take into account the likely costs of maintenance, sometimes estimated at a few percent of the house's value.

Thirty or forty years ago, one couldn't get a standard mortgage whose payments, plus property taxes and homeowners' insurance, exceeded 28% of gross income, or take on a mortgage when the sum of those costs and other debt service (credit card, student loans, car loans) exceeded 35% of income.

Today, according to the Consumer Financial Protection Board, "Qualified Mortgages" generally don't exceed a debt-to-income ratio of 43%.   But that doesn't appear to include expenses for utilities.

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

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

The Philosophy of the Single Tax
by J. Farrell

No. IV   The Heart of the Matter

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

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

What He Said -- Harold Sudell in 1947, and Enoch Ensley in 1871 --- and Amazon's search for location

Something the towns seeking to attract Amazon's proposed 2nd Headquarters might consider:

TO ATTRACT INDUSTRIES

To the Editor of The Inquirer:

Our State Legislature has appointed a committee to find out the reason why our industries do not increase faster and why more new industries do not locate here.

This committee should recommend that inducements be held out to industries seeking a location and at the same time it should cut down the burdens that injuriously affect Industries now here.

There is a simple, sure and just method of doing this.

Abolish altogether the foolish, unnecessary and harm-working tax on buildings and concentrate the entire present real estate tax on the socially made values of land. This will make for exceedingly low-price site values and tax-free buildings. No other plan can offer the benefits that this would confer.

Try it out in Pennsylvania and see how new industries will flock here and how our home industries will grow.

HAROLD SUDELL

Philadelphia. Nov. 19.

---

Public Policy: Jul.-Dec.,1900, Volume 3   November 17, 1900

THE TAX QUESTION.
BY ENOCH ENSLEY.

INTRODUCTORY.
BY LAWSON PURDY,
Secretary New York Tax Reform Association.

The following letter was written in 1871 by Enoch Ensley, a landowner of Tennessee, to Governor Brown. Mr. Ensley was a pioneer in the cause of tax reform, and his letter, written nearly thirty years ago, is just as true and applicable to present day conditions as it was to the conditions of Tennessee when he wrote it. So far as known, Mr. Ensley's thought was original with himself, for with the exception of some few advanced thinkers in the state of New York, no one had advocated in this country the exemption of personal property from taxation.

The general property tax had naturally grown up in this country as an inheritance from Europe, and in the early days of the republic, when conditions were primitive, it was comparatively easy to tax all forms of property. The original theory on which the general property tax was based seems to have been that men should pay taxes in proportion to their ability, and that the amount of their property was a fair index of their ability to pay. At the present day it is not uncommon to find the theory advanced that equality of taxation requires the equal taxation of all property.

Both these theories are condemned by their impracticability, but the theories themselves will not stand examination. There is no reason why different principles should be advanced to justify payments to the state from those which justify payments in business dealings between man and man. All ordinary business dealings are based on the exchange of equivalents. The storekeeper does not grade his prices according to the income of the purchaser, but exacts a payment in proportion to the value of the article sold. This is the natural principle to be applied in the affairs of state, and each taxpayer should be called on for the equivalent of the pecuniary benefits he receives, from the state—no more, no less.

Mr. Ensley approaches the subject from what may be called the practical rather than the theoretical standpoint, and shows the unwisdom and disadvantage to"the interests of all in attempting to tax movable property. The text which he says should be engraved in letters of gold in every legislative hall remains and will remain supremely true:

Never Tax Anything that Would Be of
Value to Your State, that Would Run Away,
or that Could and Would Come to You.

Memphis, Tenn., Sept. 1, 1871.

To His Excellency, Governor John C. Brown.

Dear Sir:—As a citizen of the state over which you have the honor to preside as governor, feeling a deep interest in its prosperity, I desire to submit for your consideration and the consideration of the people of Tennessee, some remarks on the subject of taxation— what I deem the correct principle or system of taxation, as compared with the unwise and incorrect system now in operation in our state; and in doing this I desire to cast no reflections upon you, as governor of the state, nor hold you in any way responsible for the present system—for the evil, as I understand it, is in our organic law, the constitution of the state, and cannot be remedied short of a change of said constitution. Further, I will say that if you were, to some 'extent, responsible", I would be prepared to excuse you, for the evil exists not only in Tennessee, but in many, if not all, the states of the Union. But.mot-, withstanding it may exist in all the states, it is, nevertheless, an evil—a wrong system working against the interests and prosperity of the states wherein it exists, but perhaps, owing to the peculiar surroundings, not so much against the prosperity of any state as our state of Tennessee.

FALLACY IN THE CONSTITUTION.

Land Basis to All Business, and Machine Age and Land Value

Exploring some old newspapers, I found a letter to the editor that I thought was a nice simple expression.  It was written by someone named Warren T. Lowe, of Media, PA, in 1930.

Land Basis to All Business

To the Editor of the Inquirer:

Mr. W. M. G. in criticizing my letter intimates that land can be used only for farming.  Many people make this error.  All business propositions use land.  All activities of life have it as their basis.  We use it before birth, after death and every instant between these events.

We stress value instead of area.  A farm of one hundred acres employs a few men; one acre, in the center of a large city, may employ a thousand.  There is a natural value of land due to the advantage one parcel has over another; there is also an artificial value due to speculation.  As business expands the latter rises until it permeates the whole structure, when it chokes further progress and is followed by business stagnation.

Henry George discovered the remedy, viz., Take in tax the annual ground rent, thereby killing speculation; then remove all other taxes, thereby giving the greatest "boost to business" it ever had.

---

And that same year appeared another LTE from the same fellow:

Machine Age and Land Values

To the Editor of the Inquirer:

Your correspondent, "Jersey" makes some good points, but with one of them I would differ.  Instead of the advantage of efficiency in the use of machinery going to owners of machinery it goes to the landlords, which is shown in the following three examples:

(1) Henry George was asked by a man, "If I owned all the money and you owned all the land, what would you do?"  Ans. "I would say to you, give me all your money or get off the earth."  He could have used marchinery or any other form of capital instead of money with the same result.

(2) Henry Ford put out a tractor which displaced eight horses and three men on the farm.  There were 900,000,000 acres of land below the margin of cultivation which this transaction raised above it. Did it raise wages? No; it raised the rent and selling price of that land.

(3) In the early days of California, wages of labor were $500 a month and interest on capital 24 percent; rent was nothing.  Today wages are but a fraction of that; the Government sells bonds for less than 3 percent; gilt-edged securities bring 4 to 5 percent interest; but rent is measured by the hundred millions.

A 1927 article on Taxation

TAXATION QUARTERLY October, 1927

TAXATION
Baltimore, Md, 10-7-1927.

It is impossible to talk taxes without talking government. One is justified is saying: No taxes, no government; no government, no taxes which is to say, if we had no taxes governments could not exist and if we had no governments no taxes would be necessary. All of us agree that society cannot exist without government, therefore taxes are a necessity. For just what food is to the human body, taxes are to government, and just as the human body can sustain life for a long time on poor food taken irregularly at wrong times and in wrong proportions, so government can be sustained for an indefinite period upon bad taxes that are oppressive, unjust, badly collected and in many respects injurious; but as bad food finally breaks down the health of the body so do bad taxes ultimately destroy the health and sometimes even the life of the body politic.

It is asserted that Rome owed its decline to bad systems of taxation as much as it did to slavery itself, for just at the time the 100 percenters were hollering the loudest the tax gatherers were so cruel and unjust in their efforts to squeeze the last cent out of the people that their morale was destroyed, their patriotism killed, and it became a matter of indifference to them under which taxing machine they lived. The same spirit was shown in our own country after this last war, when it was often said, “What's the use of trying to make money in your business when the government comes along and takes it away again?” Let this spirit become general and what happened to Rome will happen here. It only emphasizes the truth of the saying, THE POWER TO TAX IS THE POWER TO DESTROY. This power when used wrongly permits tyranny and robbery, all the more dangerous because they are carried on under the guise of law and because they are hidden.

James Maguire's speech in the House of Representatives: 1894-01-31 Direct Taxation of Land Values

Search this on "Santa Marguerita" and on Salinas River.

 

DIRECT TAXATION OF LAND VALUES,

Speech of HON. JAMES G. MAGUIRE, of California.
In the House of Representatives, Wednesday, January 31, 1894.

The House being in Committee of the Whole on the state of the Union, and having under consideration the bill (H. R. 4864) to reduce taxation, to provide revenue for the Government, and for other purposes, and the question being upon an amendment thereto offered by the gentleman from Tennessee (Mr. McMillan), providing for a tax on incomes, etc., the following proceedings were had:

MR. MAGUIRE. Mr. Chairman, I offer the amendment which I send to the desk. The amendment was read, as follows:

Amend the amendment by striking out sections 1 to 18 thereof, both inclusive, and inserting in lieu thereof the following:

"And be it further enacted, That a direct tax of $31,311,125 be, and is hereby, annually laid upon land values in the United States, and the same shall be, and is hereby, apportioned to the States and Territories and District of Columbia, respectively, in proportion to population as ascertained by the census enumeration of the year 1890.

"Sec. 2. That the said direct tax laid by this act shall be assessed and laid on the value of all land exclusive and irrespective of the improvements thereon; Provided, That all lands belonging to the United States, or to any State, county, or municipality, shall be exempted from assessment and taxation under this act; And provided further, That all land subject to taxation under this act shall be valued and assessed, for the purpose of taxation, at its full market value, on the first Monday in March of each year, the valuation for the fiscal year commencing on the 1st day of June, 1894, to relate to the first Monday of March, 1894.

"That, for the purpose of assessing said tax and collecting the same, sections 9 to 12, both inclusive; sections 14 to 48, both inclusive, and sections 53 to 58, both inclusive, of that certain act entitled 'An act to provide increased revenue from imports to pay interest on the public debt, and for other purposes,' approved August 5, 1861, are hereby re-enacted and made of full force and effect hi so far as they provide for the assessment and collection of direct taxes on lands and lots of ground, and for any and all methods and procedure in the levying, collection, and enforcement of such taxes."

Mr. MAGUIRE (continuing) said:

Mr. Chairman: The arguments in support of the pending amendment have all proceeded upon the theory that the proposed tax upon incomes, above $4,000 per annum, will compel the rich to bear a fairer proportion of the expenses of the Government than they now bear, and that the people will be satisfied with the accomplishment of that result. The people do, indeed, very much desire the establishment of such a system of taxation, and their claim for a more equitable distribution of the burdens of taxation is unquestionably just. But they are really desirous of substantial relief from the present power of the rich to use their wealth for the oppression of the poor; and they expert some measure of that relief to come to them through the income tax.

Such relief will not come from the income tax, nor will that change in our system of taxation even tend to curb the oppressive power of wealth. It simply puts a 2 percent tax mainly on the results of useful investments and of personal effort. The control of labor by wealth, in certain forms of investment, and the consequent unfairness in the distribution of the products of labor is a matter of infinitely greater importance to the people than the equalization of the burdens of government, which is sought to be accomplished by the income tax. I am in favor of the income tax, as proposed by the Committee on Ways and Means, because it is better than the system of taxation now prevailing; because the burdens which are laid by the income tax, wherever they may ultimately fall, are all for public uses, while under the tariff system three parts of the burden are laid for the enrichment of private individuals to every one part that is collected for public use.

As a choice between the income tax and any extension of tariff taxation, beyond that provided for in the "Wilson" bill, I will unhesitatingly vote for the income tax.

UNDUE POWER OF WEALTH.

But, sir, I seek by the amendment which I have just submitted to establish a system of taxation by which the revenues necessary for the support of this Government can be raised without any burden whatever upon either industry or commerce, and by which, at the same time, the power of accumulated wealth over labor will be destroyed. The power of wealth to oppress labor results almost entirely from the present investment of wealth in the control of the natural resources, from which alone labor can produce wealth.

Land is the storehouse in which the Creator has placed the raw materials of all wealth, and labor is the means by which those raw materials are changed into forms of usefulness for the satisfaction of human wants. Wealth is the result of labor applied to land, or to the products of land, and land furnishes not only this raw material for all wealth, but it constitutes also the home and the working place of all labor. All of these things the Creator freely provided for the use and sustenance and shelter and comfort of mankind by giving the land of the world, with its abundant resources, as an equal heritage to the whole human race. The same Creator made man a land animal. He must live upon the land, and from the fruits of the land, if he shall live at all. All of his food and clothing and shelter, and every other thing that will tend to satisfy his wants, natural and acquired, come from the land. Indeed, his whole physical body comes from the land, and goes back to the land again at the close of his life.

Separated from the land, man must perish, just as a fish would perish on being separated from the water, which is his element. Therefore, if man has a natural and inalienable right to life and to liberty and to the pursuit of happiness, he must have a natural and equally inalienable right to the means which the Creator, who gave him life, has freely and abundantly provided for his support. There can be no right to life more sacred than the right to the means of sustaining life. "You take my life when you do take the means by which I live." Liberty is impossible to one man so long as another man controls his means of living.

Who Gets the Land Rent, and Why: Two NYC Stories

and, more to the point, is there a better way to do things, if an efficient economy, more jobs, less income concentration are things we value?

Interesting that, according to these articles, the lords of NYC land will collect 6% or 8% of the land's value when the rent resets.  6 or 8%!   (Typical property taxes in NYC for condos run less than 1% of the total value; see http://www.nytimes.com/2012/10/16/nyregion/many-high-end-new-york-apartments-have-modest-tax-rates.html, which includes this paragraph:

"In a study of 2010 nationwide property tax rates, the average homeowner paid a median of 1.14 percent of home value that year, according to the Tax Foundation, a research group. In Manhattan, that figure was 0.78 percent. For the $88 million apartment at 15 Central Park West, 0.78 percent would be $686,000. But this year, the property taxes due on that penthouse were $59,000."

Just think how much productive activity we could untax were we-the-people to collect some portion of that annual land rent for public purposes.   And consider how unproductive the Lords of Land are.  What have they done to earn that land rent?  Is our "tradition" -- to let them keep it -- a wise or just one, or is it part of our wealth concentration structure?

Here are the two articles, with a couple of calculations added:  (Notice that acreage is not even mentioned!)

http://www.bloomberg.com/news/2014-11-06/nyc-trump-co-op-dwellers-face-million-dollar-bills.html

NYC Trump Co-Op Dwellers Face Million-Dollar Bills
By Oshrat Carmiel  Nov 6, 2014 4:16 PM ET   

The ground beneath Trump Plaza, at 167 E. 61st St., is up for sale as land prices break records.
Manhattan’s surging land costs are leaving the shareholders of an East Side luxury co-operative with a tough choice: pay a hefty price to buy the land under the building, or face increasing bills to keep renting it.

The ground beneath Trump Plaza, at 167 E. 61st St., is up for sale as land prices break records. The co-op board has offered to buy the property for $185 million, a cost that would saddle residents with assessments that, for some, would top $1 million, said Adam Leitman Bailey, a New York real estate attorney who has been contacted by owners concerned about the deal before it goes into contract.

“People are calling me to stop this from happening,” said Bailey, who has reviewed board documents but hasn’t been officially retained. “People want to stop the assessment.”

The 31-year-old co-op, which makes annual rent payments to the family that owns the ground, is weighing its financial future at a time when rising prices for land make it attractive for investors to buy such property for a reliable stream of rental income. The board opted to put in a bid as it otherwise faces the prospect of a steep rent increase when the lease resets in 2024, Bailey said.

“The fact that the family put it up for sale should terrify the co-op,” said Joshua Stein, a Manhattan real estate attorney who isn’t involved in the transaction.

“Whatever opportunistic investor buys the land will probably be way more aggressive about the rent reset than either an estate or a group of heirs,” he said. “Someone who is buying it, is buying it specifically to squeeze out every last dollar of rent.”

Monthly Payments

Marc Cooper, president of the co-op board and vice chairman of investment-banking firm Peter J. Solomon Co., didn’t return a phone call left at his office yesterday seeking comment on the plan to purchase the ground.

Co-op residents buy shares in a corporation that owns the building, rather than getting a deed to the apartment itself, as they would in a condominium. Shareholders make monthly maintenance payments that collectively cover building costs such as mortgage payments, ground rent and operating expenses.

A Trump Plaza shareholder with a 1,000-square-foot (93-square-meter) one-bedroom apartment whose monthly maintenance fee is now about $2,100 would pay about $9,800 after the rent is recalculated in 10 years, Bailey said, citing a projection by the building’s co-op board. The rent increase would be about 8 percent of what the land value is in 2024, he said.

Record Prices

Buildable lots in Manhattan sold for an average of $657 a square foot in the third quarter, up 29 percent from a year earlier and an all-time high for the period, according to Massey Knakal Realty Services. Three purchases completed in the quarter were for more than $1,000 a square foot, the firm’s data show.

LVTfan here:  That $657 per square foot is NOT per square foot of land (at 43,560 sq ft per acre, that would be just $28.6 million per acre, laughably low in Manhattan). Rather, it is per buildable square foot.  Quick and dirty, if a, say, 20 story building can be built on a 10,000 sf footprint, constituting 200,000 sf, the calculation would be 200,000 times $657, or $131.4 million, for that 1/4 acre, which works out to over $500 million per acre. $500 million per acre -- compared to an acre of good agricultural land, at $5,000 per acre, that's 100,000:1.  (And for those 3 purchases over $1,000 psf, add 50% to that ratio.)

Possibly difficult for those of us who see land which sells for $5,000 or $50,000 or even $500,000 per acre to fathom $500 million per acre.  But that's reality!

Trump Plaza’s situation is different from most other co-operatives in Manhattan, which do own the land on which the building sits and make no rent payments. Co-op units with ground leases tend to sell at a discount because they have higher maintenance costs and buyers sometimes face challenges getting mortgage financing. Other ground-lease co-ops in New York include 995 Fifth Ave., the Excelsior at 303 E. 57th St. and Carnegie House at 100 W. 57th St.

Carnegie House

The ground beneath the 324-unit Carnegie House was purchased for $285 million to a group that includes Rubin Schron’s Cammeby’s International and real estate investor David Werner, Christa Segalini, a spokeswoman for Cammeby’s, said today. The 21-story building, with an entrance on Sixth Avenue, occupies an entire block front from 56th Street to 57th Street, according to real estate website Streeteasy.com.

For shareholders at Trump Plaza, buying the land beneath them means coming up with large sums of cash up front. Each owner was assessed a fee of about $2,329.40 a share, according to Bailey.

A resident of a two-bedroom unit who holds 440 shares in the corporation, for example, would be charged $1.02 million, Bailey said. A 1,600-square-foot three-bedroom apartment, worth 671 shares, would get a $1.56 million assessment. Residents get more shares the higher up their apartments are in the 39-story building.

The 154-unit Trump Plaza, at 61st Street and Third Avenue, was completed in 1983, according to StreetEasy. A 2,800-square-foot unit on the 32nd floor with views of Central Park is listed for sale at $3.95 million. The monthly maintenance charge for the three-bedroom, four-bathroom apartment is $7,228, according to the website.

LVTfan here: One might reasonably wonder how much (a) the sellers of the land were paying NYC in property taxes; (b) how much of the monthly "maintenance charge" for the condo is paid by the condo complex to the city in property taxes (which pay for the schools and lots of other public services) and how much is for the building and its services to the condo owners; and (c) how much the land share of that 32nd floor unit is.  If a 1600sf apartment gets a $1.56 million assessment, the 32nd floor apartment, at 2800sf should be roughly twice that, or about $3 million.  Thus, the $3.95 million asking price on the 32nd floor is about 4/7 of the total value, or 56%; the other 44% is land value.

Resale Value

The sale of the ground beneath the tower hasn’t gone into contract yet. Douglas Harmon and Adam Spies, brokers at Eastdil Secured LLC, are representing the owners, who are listed in public records as the estate of Donald S. Ruth and members of the Ruth family. Spies declined to comment on plans for the sale.

A purchase of the land by the co-op ultimately would add resale value to the building’s apartments, Stein said. Extinguishing the ground lease permanently removes the threat that rents will reset to unaffordable levels. With that uncertainty gone, future buyers would be willing to pay more for a unit in the tower, he said.

“If you’re the co-op, getting rid of that threat is a really good thing,” Stein said. “There’s a lot of value being created.”

To contact the reporter on this story: Oshrat Carmiel in New York at [email protected]

To contact the editors responsible for this story: Kara Wetzel at [email protected] Christine Maurus

 

Here's the second article

http://therealdeal.com/blog/2014/11/06/werner-led-group-pays-285m-for-land-under-100-west-57th-street-sources/

Werner-led group pays $285M for land under 100 West 57th Street: sources

324-unit Carnegie House co-op faces ground rent reset in 10 years, insiders say

November 06, 2014 11:30AM  By Adam Pincus

• Print

Carnegie House at 100 West 57th Street (Photo credit: Google)

David Werner, a Borough Park investor who has wowed New York City with a series of big buys this year, partnered with Rubin Schron and the Cohen family to pay $285 million for the land under 100 West 57th Street, sources told The Real Deal. The 324-unit Carnegie House cooperative building is the ground tenant on the property.

A person close to the deal said the investment group closed yesterday on the purchase of the property, which is located at the corner of Sixth Avenue and 57th Street.

This is the third major acquisition by David Werner this year. He purchased 5 Times Square for $1.5 billion and the leasehold for the Mobil Building at 150 East 42nd Street, for $855 million. Werner, Schron and the Cohen family’s Carlton Associates did not immediately respond to requests for comment.

Insiders expect to see more pricey sales of land under co-op buildings with resets looming.

In fact, the sale is being mirrored nearby with the marketing of the ground under the Trump Plaza at 167 East 61st Street, which has a rent reset in 2024. Eastdil Secured brokers Doug Harmon and Adam Spies have that listing.

The co-op building has a ground lease that runs for another 51 years with the property owner, currently paying about $4.4 million per year. In approximately 10 years, the rent for the ground lease payments will reset. That reset will be based on market values.

an average of $13,600 per year per family -- ignoring the commercial tenants

Ground resets typically price the new rent at about 6 percent of the current market value.

Investment sales broker Robert Knakal, chairman of Massey Knakal Realty Services, estimated the value of the land to be at least $1,200 per square foot and up to $1,500 per foot, if the value of the retail is taken into consideration. Knakal is not involved in this property.

At that value, the land with 377,000 square feet of development rights, would be worth $452 million. That could work out to an annual rent payment of $27 million per year, if reset today, according to an analysis by TRD.

An average of $83,300 per family -- ignoring the commercial tenants

To help fund the purchase, the group obtained a $180 million loan from Natixis Capital Markets in a deal arranged by Drew Anderman, a senior managing director at the mortgage brokerage firm Meridian Capital Group, insiders familiar with the deal said.

 

 

Some thoughts about Piketty's "Capital in the 21st Century"

I posted this comment elsewhere, and thought it worth sharing here:

I've not read far into the book yet -- and it is available online as a PDF file -- but by the time I was into the first chapter, it was clear that Dr. Piketty's economic education, extensive as it might be, entirely omitted the ideas of the classical economists who described a 3-factor economy: land, labor and capital. Piketty, like nearly everyone educated in economics in the past 40 to 80 years, writes as if there were only two factors -- labor and capital -- treating land as if it were a mere subset of capital, with no reason to recognize it as differentiated.

Land -- not only urban sites, but also the other things the classical economists would recognize as Land, such as water rights, oil, electromagnetic spectrum (our airwaves which we all say belong to the American people, but which are in reality owned by corporations), landing rights at busy landlocked airports, geosynchronous orbits, urban street parking, the value of dozens of other non-renewable natural resources -- is completely different in character from that which is created by labor. To fail to recognize that difference lies at the bottom of our inequality problem.

That which individuals and corporations produce is rightly individual property. That which the community and nature produce is rightly common property, belonging to all of us. Conflating Capital and Land leads us to permit the privatization of that which is rightly our common treasure.

You might be interested to know that the Landlord Game, invented by 1902, was intended to teach this concept. You have probably played Monopoly, which was based on this game, played with very different rules.

Explore the ideas of Henry George. Between 1885 and 1900 or so, everyone knew the name and many well understood his ideas. You might start with "Social Problems" or the more analytical "Progress and Poverty," or his speeches, "The Crime of Poverty," "Thou Shalt Not Steal," among others, online at http://www.wealthandwant.com. See also http://lvtfan.typepad.com.

Dr. Piketty and others whose education in economics has omitted George's ideas should not be treated as experts; they've mixed apples and oranges and not noticed that what they've created impoverishes the vast majority of us -- and enriches a few. (Parenthetically, consider who donates heavily to our universities.)

 

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

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

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

By Catherine Cashmore |  Monday, 25 November 2013

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

---

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

 

Basic Principles of Ground Lease Agreements – Yes, a Contract!

Here are the opening paragraphs of a recent article about the complexities of Ground Lease contracts.  I commend the entire article to your attention.  It helps flesh out why and how the entire FIRE sector -- Finance, Insurance and Real Estate (as well as their attorneys) --  is receiving such a large share of the profits produced by the productive sectors of the economy.  The owner of land, and the entities which lend on land, and insure the buildings and the revenue flow, all reap significant shares of what the tenants labor to create.   Modern sharecropping.  And the recipients of the ground rent get to parade as self-made men, people of awesome foresight and wisdom -- and even philanthropists (think Brooke Astor, the Fishers, and others in your own community) when they donate a small share back to a charity!  As you read this, think both of Manhattan land and of land in your community's central business district, and along its major roads.  (Location, location, location!)

If one wonders why (true) small business struggles, one might consider the complexity and expense of their ground leases, and contrast that with the Georgist alternative: that one's taxes would be simply the current rental value of the land, while the value of the building remains one's private property, not subject to taxation or going pouf! at the end of a ground lease.

The land lord is "supplying" something he didn't create.  We ought to ease him out.  Land value taxation is the obvious tool for reducing, and -- slowly or not -- eliminating, his "take" on those who do create.  Think what it would mean if working people had that spending power, instead of the lords of the land.

All that land rent could be used to fund our community's needs, instead of lining the pockets of a few very "lucky" -- privileged -- duckies.  (The analogies to chattel slavery are not a long stretch, once one starts to think about it.  We should all own ourselves, and reap the fruits of our own labors.)

Basic Principles of Ground Lease Agreements – Yes, a Contract!.

PUBLISHED: JANUARY 7, 2013  

A lease is a lease is a lease – or so you may think. Yes, real property leases grant an estate in land to a tenant for a period of time. And yes, the tenant pays for that right of possession. But the action in a lease isn’t in the conveyance provisions; it’s in the contract provisions. Multiply out the rent and other annual monetary obligations by the length of the lease term (in years), and you’ll see that it might be (and often is) a big dollar contract. Even more important, unlike the vast majority of contracts whose obligations are satisfied in days or weeks, a lease contract goes unfulfilled for 50, 75, “99,” and even 500 years. That takes it beyond the life of the parties involved in its creation, and the future brings surprises. Neither Nostradamus nor Jules Verne got everything right. 

Why a Ground Lease? 

If a tenant has to build its own building (as is often the case), and has all of the burdens of ownership, why would it lease a property knowing that at the end of the lease term it has nothing left to show for its money and efforts? There are a number of common reasons, principal among them is that the owner won’t sell the land and the tenant has no alternative. 

Real property often carries a long term unrealized gain, waiting to be taxed upon its sale. 

Not every landowner is interested in making further active real property investments. This makes a like kind exchange unappealing. 

Ground leasing the same land keeps ownership in the family. At the owner’s death, because of the current estate tax “stepped up basis” arrangement, the built in gain may never be taxed.

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The Mortgage on the Farm

We worked through spring and winter, through summer and through fall.

But the mortgage worked the hardest and steadiest of them all;
It worked on nights and Sundays, it worked each holiday;
It settled down among us and it never went away.
Whatever we kept from it seemed almost as bad as theft;
It watched us every minute and it ruled us right and left.
The rust and blight were with us sometimes, and sometimes not;
The dark-browed, scowling mortgage was forever on the spot.
The weevil and the cutworm they went as well as came;
The mortgage stayed forever, eating heartily all the same.
It nailed up every window, stood guard at every door,
And happiness and sunshine, made their home with us no more;
Till with falling crops and sickness we got stalled upon the grade.
And there came a dark day on us when the interest wasn't paid.
And there came a sharp foreclosure, and I kind o' lost my hold.
And grew weary and discouraged and the farm was cheaply sold.
The children left and scattered, when they hardly yet were grown;
My wife she pined and perished, and I found myself alone.
What she died of was a mystery, and the doctors never knew;
But I knew she died of mortgage — Just as well as I wanted to.
If to trace a hidden sorrow were within the doctors art.
They'd ha' found a mortgage lying on that woman's broken heart.
Worm or beetle, drought or tempest, on a farmer's land may fall.
But for a first-class ruination, trust a mortgage 'gainst them all.

How much of a farmer's mortgage is for the value of the land itself, and how much for the present value of the improvements which previous owners have made, such as clearing, draining, fencing, irrigating, building structures, plus, perhaps, equipment purchased with the land and buildings?

For that matter, how much of a homeowner's mortgage is for the value of the land itself --including its access to community-provided services such as city water and sewer, fire hydrants, and the like -- and how much for the purchase price of the landscaping and structures on the property, built by any of the previous owners?

To what degree is the modern buyer including in his formal calculations or his underlying assumptions the notion that the land will increase in value during his tenure?  (See Case & Schiller, 2003.)

The Blue-State Income Tax Deduction

I would love to see a map showing what states the people who take the income tax deduction for home mortgage interest live.  I think we'd find it was the so-called Blue states, where the value of land is higher, and wages are higher, and property taxes are higher.

Funny that we're willing to help subsidize the borrowing necessary for some people (buyers) to paying off other people (sellers) for value the sellers didn't create!  And then we don't tax those so-called "capital" gains much at all!  A few communities collect a few percent of each transaction, which isn't a great idea either, particularly when it is collected from the buyers, who likely borrow it!

Who gains?  the FIRE sector.  What else is new?  

How naive are we?  Don't ask!

 

 

Why Are States So Red and Blue?

Why Are States So Red and Blue? - NYTimes.com.

Regardless of who wins the presidential election, we already know now how most of the electoral map will be colored, which will be close to the way it has been colored for decades. Broadly speaking, the Southern and Western desert and mountain states will vote for the candidate who endorses an aggressive military, a role for religion in public life, laissez-faire economic policies, private ownership of guns and relaxed conditions for using them, less regulation and taxation, and a valorization of the traditional family. Northeastern and most coastal states will vote for the candidate who is more closely aligned with international cooperation and engagement, secularism and science, gun control, individual freedom in culture and sexuality, and a greater role for the government in protecting the environment and ensuring economic equality.

The article ends:

If this history is right, the American political divide may have arisen not so much from different conceptions of human nature as from differences in how best to tame it. The North and coasts are extensions of Europe and continued the government-driven civilizing process that had been gathering momentum since the Middle Ages. The South and West preserved the culture of honor that emerged in the anarchic territories of the growing country, tempered by their own civilizing forces of churches, families and temperance.

Interesting article ... I commend it to your attention ... and some of the comments are very interesting.  But I think Mason Gaffney's 2004 analysis, The Red and The Blue, is worth adding to the discussion.  He describes some important reasons why life in red and blue areas is so different.

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That acre in Manhattan

An article in the NYT a few weeks ago described some proposed changes in the zoning for midtown Manhattan.

Bloomberg Pushes a Plan to Let Midtown Soar

The accompanying map says, "Around Grand Central Terminal, towers could be up to twice the size now permitted.  Development could also take place along the Park Avenue corridor, where towers could be more than 40% larger. Elsewhere in the district, towers could be 20% larger."

But New York’s premier district, the 70-block area around Grand Central Terminal, has lagged, Bloomberg officials say, hampered by zoning rules, decades old, that have limited the height of buildings.

Mayor Michael R. Bloomberg wants to overhaul these rules so that buildings in Midtown Manhattan can soar as high as those elsewhere. New towers could eventually cast shadows over landmarks across the area, including St. Patrick’s Cathedral and the Waldorf-Astoria Hotel. They could rise above the 59-story MetLife Building and even the 77-story Chrysler Building.

Mr. Bloomberg’s proposal reflects his effort to put his stamp on the city well after his tenure ends in December 2013. Moving swiftly, he wants the City Council to adopt the new zoning, for what is being called Midtown East, by October 2013, with the first permits for new buildings granted four years later.

His administration says that without the changes, the neighborhood around Grand Central will not retain its reputation as “the best business address in the world” because 300 of its roughly 400 buildings are more than 50 years old. These structures also lack the large column-free spaces, tall ceilings and environmental features now sought by corporate tenants.

The rezoning — from 39th Street to 57th Street on the East Side — would make it easier to demolish aging buildings in order to make way for state of-the-art towers.

Without it, “the top Class A tenants who have been attracted to the area in the past would begin to look elsewhere for space,” the administration says in its proposal.

The plan has stirred criticism from some urban planners, community boards and City Council members, who have contended that the mayor has acted hastily. They said they were concerned about the impact of taller towers in an already dense district where buildings, public spaces, streets, sidewalks and subways have long remained unchanged.

Mr. Bloomberg has encouraged high-rise development in industrial neighborhoods, including the Far West Side of Manhattan, the waterfront in Williamsburg, Brooklyn, and in Long Island City, Queens. But with the proposal for Midtown, which is working its way through environmental and public reviews, he is tackling the city’s commercial heart.

“Unlocking the development potential in this area will generate historic opportunities for investment in New York City,” Deputy Mayor Robert K. Steel said.

The initiative would, in some cases, allow developers to build towers twice the size now permitted in the Grand Central area. The owner of the 19-story Roosevelt Hotel at Madison and 45th Street could replace it with a 58-story tower under the proposed rules. Current regulations permit no more than 30 floors.

See also http://lvtfan.typepad.com/lvtfans_blog/2008/03/hotel-roosevelt.html , which discusses this in terms of value of land per buildable square foot.

When zoning changes increase the value of land, who should reap the benefit?  The current landholder, or the community?    What did the landholder do to earn that windfall?  Do you think it comes out of thin air?  Do you think it is paid him by other rich people?

Or do you recognize that it is part of the structure which enriches a few and impoverishes the many?

It is easy to fix this one.  One just has to recognize the structure, and value the land correctly, and start collecting the lion's share of the land rent for the community.  If it is more than NYC can put to use -- and it will be -- then apply the excess to reducing our federal taxes on productive effort.  Use it to fund Social Security, or Medicare, or universal health insurance, or something else that will benefit the vast majority of us instead of an undeserving tiny privileged minority.  Don't throw it in the ocean, and don't leave it in private pockets, be they American or not. 

Collect   the   land   rent.    Repeat next year, and the next, and the next.  Natural Public Revenue.

On Wages, from an 1887 weekly ... and relevant in 2012 America

"The wages problem resolves itself into a very simple question, viz.: Which is the better for a community — to have 10,000,000 men earning $2.50 a day, with hours that enable them to read and rest and pass a fair proportion of their time with their families, and at the same time have no millionaires, or to have those 10,000,000 men working fifteen hours a day at $1.50, and have a few score millionaires?"

This was a bit of end-of-column filler from the January 29, 1887, issue of Henry George's weekly newspaper, The Standard, and is attributed to The San Francisco Reporter. 

The Standard was devoted to issues like this, and makes excellent reading in this decade and century.

It might be worth noting that in those days when one spoke of a millionaire, the reference was to someone whose assets totalled over $1 million.  Today, it is commonly used to refer to someone whose annual income is over $1 million.  But you'll notice what workmen's wages were in 1887 -- $1.50 a day is $468 per year*, and likely didn't leave much, if anything, for savings. [6 days a week.]

So which IS better for the community?  The families making $1.50 or $2.50 a day are spending nearly every penny of that, just in order to get by.  The millionaires can only spend so much on the necessities of daily life, plus some generous amount on luxuries.  The rest they will invest, one way or another, and the wise ones, in our current structure, will "invest" in land -- particularly choice urban sites -- and natural resources, since we as a society are so generous about letting the owners of these assets keep most of what those assets earn, despite them having nothing to do with having created those assets, and being in no position to create more in response to demand, which will naturally increase with population!! 

THAT is the problem with our current "generosity."

The spending of the 10 million on the necessities of daily life creates jobs for a lot of other people.  (The portion that goes to their landlords in payment for the right to occupy bits of urban -- or other -- land, DOESN'T create any jobs; it simply enriches the landlord.  I don't begrudge the landlord the portion that relates to the building, or to services he provides, such as, say, a doorman in the city.)

 

Stiglitz: "Mitt Romney’s Fair Share"

a few excerpts from: "Mitt Romney’s Fair Share" by Joseph E. Stiglitz | Project Syndicate.

A major theme of the underlying political debate in the United States is the role of the state and the need for collective action. The private sector, while central in a modern economy, cannot ensure its success alone. For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation.

Moreover, beyond effective regulation (including ensuring a level playing field for competition), modern economies are founded on technological innovation, which in turn presupposes basic research funded by government. This is an example of a public good – things from which we all benefit, but that would be undersupplied (or not supplied at all) were we to rely on the private sector.

Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.

But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share. ...

I have to disagree with the second sentence of this next paragraph.  And I think Stiglitz knows better, if he stops to think about it:

Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable. 

We don't need intrusive or coercive; we just need to start collecting the lion's share of the rent!  Well, I suppose some rent-seekers would find this extremely intrusive -- it intrudes on their habit of self-enrichment by privatizing of what is rightly and logically our PUBLIC treasure, the logical way of financing PUBLIC goods.   And Professor Stiglitz is quite aware of the value of natural resources; he may not be quite as conscious of the value of urban and other well-situated land.   

Our national recordkeeping doesn't even collect the valuations of land and natural resources on any consistent basis! (One could reasonably argue that this failure-to-measure is a form of corruption!)  What we don't measure we can't do anything about.  And the powers that be are quite content with how we do things; the benefits accrue to them!  And several generations of college-educated people know nothing about the issue, which was well known and widely discussed 100 years ago.  (Look into the extensive Single Tax literature and the ideas of Henry George.)

Some more excerpts:

The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.

Comments

But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.

Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased. 

Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality, and – coming full, vicious circle – constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness.

There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney – who insists that he has been subject to an income-tax rate of “at least 13%” for the last ten years – not to pay their fair share. The resulting economic inequality – a result of politics as much as market forces – contributes to today’s overall economic weakness. 

The Earth-for-All Calendar: August 7 -- Thorold Rogers and Ede

I can easily imagine a great proprietor of ground rents in the metropolis calling attention to the habitations of the poor, to the evils of overcrowding, and to the scandals which the inquiry reveals, while his own income is greatly increased by the causes which make house-rent dear in London, and decent lodging hardly obtainable by thousands of laborers.

— PROF. THOROLD ROGERS, Work and Wages, Chap. XX., p. 550.

Efforts should be made to prevent the increase of value which is occasioned by the growth of the population of towns enriching private individuals.

— The REV. W. MOORE EDE, Honorary Canon of Durham, The Church and Town Problems, p. 88, note.

The Earth-for-All Calendar: August 1 -- Giffen and Howells

It is certain, however, that a large part of the improvement is due to the increasing value of advantageous sites, an unearned increase of value such as Mr. Mill speaks of, and therefore a kind of profit which the State may restrict with least harm.

— ROBERT GIFFEN, Essays in Finance, 1st Series (1871), Chap. X., p. 244. 

The rise in value which the industry of others providentially gives to the land of the wise and good.

— W. D. HOWELLS, A Hazard of New Fortunes, Part IV., Chap. 3.

The Earth-for-All Calendar: July 31 - John Stuart Mill

The ordinary progress of a society which increases in wealth is at all times to augment the incomes of landlords — to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer as it were in their sleep, without working, risking or economizing. What claims have they, on the general principles of social justice, to this accession of riches?

— JOHN STUART MILL, Principles of Political Economy, Book V., Chap. 2, Sec. 5

 

The Earth-for-All Calendar: July 30 -- Wallace

Unrestricted private property in land gives to individuals a large proportion of the wealth created by the community at large.

— PROF. ALFRED RUSSEL WALLACE, Land Nationalization, Chap. VIII., pp. 235-2.

The Earth-for-All Calendar: July 27 -- John Morley

It will be thought an intolerable thing that men shall derive enormous increments of income from the growth of towns to which they have contributed nothing — that they shall be able to sweep into their coffers what they have not produced — that they shall be able to go on throttling towns, as they are well known to do in some cases. It is impossible to suppose that the system will not be vigorously, powerfully, persistently and successfully attacked.

—JOHN MORLEY, Speech at Forfar, October 4, 1897. The Times, October 5, 1897, p. 5, column 3.

What we propose -- and the alternative

It is not proposed to confiscate any value that has been created by human industry. This would be robbery. But when the community creates wealth it is entitled to it as much as the individual is to the wealth he creates.

-- From The Irish World, cited in the first issue of Henry George's weekly newspaper, The Standard.

High Rent as the Best Manure

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

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

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

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

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

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

 

The Rent of Land, and Government Expense

"The rent of land and government expenses are both caused by population. Let one pay the other."

--Henry Chase, M. D.

Parking Revenue funds "Room for All"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In any case, parking fees are Natural Public Revenue

 

Appropriating the Gifts of Nature

Here's a piece from a 90 year old journal.  There are acres in Manhattan whose value is far higher today -- and the landlords are still reaping what the working people and visitors to New York are sowing.

APPROPRIATING THE GIFTS OF NATURE
By Walter Thomas Mills.

There are portions of New York City in which the land is valued at $40,000,000 an acre. That means $8000 each day from each acre for the landlord, and that entirely unearned by him, before there is a penny for any other purpose. Probably not less than two and one-half million dollars a day, or almost a billion dollars a year, must be earned by the people of New York City and turned over to landlords for permission to use the island, which is a gift of nature, and for the advantages that are protected and maintained by the industry and enterprise of all of the people.

In The Great Adventure, April, 1921

Think what NYC -- and America --  would be like if that "permission to use the island" money was treated as our logical public revenue source, instead of as individuals', corporations' and trusts' private revenue source.

Recall the wisdom of Leona Helmsley: "WE don't pay taxes.  The little people pay taxes."

The Earth-for-All Calendar: April 5

"Instead of subduing poverty by helping and inducing the poor to go out and inherit the earth, many of us wish to keep them crowded here, because their poverty is their inducement to labour for us rich."

— JEAN INGELOW, Words spoken by Giles Brandon; Off the Skelligs.

God made the country and man made the town.

— COWPER, The Task, Book I., line 749.

The Earth-for-All Calendar: March 31 -- Adam Smith

A tax upon ground-rents would not raise the rent of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist and exacts the greatest rent which can be got for the use of the ground.

— ADAM SMITH, Wealth of Nations (1776), Book V., Chap. 2, Art. I.

Developer Inks 99-Year Lease

The remarkable thing about this story, to my eye, is that the size of the lot isn't even mentioned!  It is worth $1 million land rent per year, and one might infer from the information provided that the lot is about 10,000 square feet, or less than 1/4 acre.

Capitalized at 5% (also known as "20 years' purchase") the lot would sell for about $20 million.

I assume that in addition to the land rent, the tenant pays the property tax on the land.  So the entire $1 million annual land rent flows out of NYC, to the property's owner, in Marshall, Virginia.

What, pray tell, has the land owner done to earn that land rent? 

Consider how many people's wage taxes and sales taxes could be lifted, and what that additional spending power could do for the local economy.  Consider what would happen if there were no taxes to be paid on the apartments or on people's condo structures.  

Or NYC can just keep letting the land rent leave the city, and even leave the country, continuing to flow into private pockets, just as if they'd rendered someone some service and earned it!

Land rent is natural public revenue, and we permit landlords to privatize it.  Aren't we generous with our patrimony?  (Leona told us the truth!)

Karl Fischer | Developer Inks 99-Year Lease | East Village.

The developer of a nine-story Karl Fischer rental apartment building planned for a corner site in the East Village signed a 99-year ground lease that requires payments each year of about $1 million.

The development company, YYY Third Avenue, signed the long-term lease for the vacant site at 74-84 Third Avenue, at 12th Street, April 27, 2011, however, a memorandum of the lease was not recorded in public records until last Wednesday, city property documents show.

A source citing city property records said the lease payment, which is not specifically recorded, could be inferred to be about $1 million per year. Prior to the document’s release, the annual lease cost was not known.

The prolific and controversial architect Fischer filed plans to build an 82,000-square-foot, nine-story residential building with 94 units, city Department of Buildings online records show. The permit has not been approved and is pending, DOB data indicate, and is to include nearly 9,511 square feet of retail, as well.

You might also be intrigued by the URL for the story ... I'm not sure what to make of it.

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

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

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

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

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

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

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

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

G. Your suggestions?

Bob Andelson: The Earth is the Lord's!

I've taken some liberties with the formatting, because sometimes bullet points help ... you can find the original in the online library at http://schalkenbach.org/  I was fortunate enoguh to meet Bob

The Earth is the Lord's

by Robert V. Andelson
Professor Emeritus of Philosophy,
Auburn University, Auburn, Alabama

George Bernard Shaw, in a letter written in 1905 to Hamlin Garland, describes how, more than twenty years earlier, he had attended Henry George's first platform appearance in London. He knew at once, he said, that the speaker must be an American, for four reasons:

• "Because he pronounced 'necessarily' . . . with the accent on the third syllable instead of the first;
• because he was deliberately and intentionally oratorical, which is not customary among shy people like the English;
• because he spoke of Liberty, Justice, Truth, Natural Law, and other strange 18th-century superstitions; and
• because he explained with great simplicity and sincerity the views of the Creator, who had gone completely out of fashion in London in the previous decade and had not been heard of there since."

George's magnum opus, Progress and Poverty (the centenary of which occurred in 1979), is characterized by the same moral and religious emphasis remarked by Shaw in its author's London lecture, an emphasis that rises in the final chapter to the noble declaration of a faith revived. It is, I think, therefore entirely appropriate that I focus today on the moral and religious aspects of his basic proposal for economic reform — his proposal to lift the burden of taxation from the fruits of individual labor, while appropriating for public use the socially-engendered value of the land.

For land value taxation is

• not just a fiscal measure (although it is a fiscal measure, and a sound one);
• not just a method of urban redevelopment (although it is a method of urban redevelopment, and an effective one);
• not just a means of stimulating business (although it is a means of stimulating business, and a wholesome one);
• not just an answer to unemployment (although it is an answer to unemployment, and a powerful one),
• not just a way to better housing (although it is a way to better housing, and a proven one);
• not just an approach to rational land use (although it is an approach to rational land use, and a non-bureaucratic one).

It is all of these things, but it is also something infinitely more: it is the affirmation, prosaic though it be, of a fundamental spiritual principle — that "the earth is the Lord's, and the fulness thereof."

It is the affirmation of the same principle to which Moses gave embodiment in the institution of the Jubilee, and in the prohibition against removing ancient landmarks, and in the decree that the land shall not be sold forever. It is the affirmation of the same principle to which the prophets of old gave utterance when they inveighed against those who lay field to field, and who use their neighbor's service without wages. It is the affirmation of the same principle to which Koheleth gave voice when he asserted in the fifth chapter of Ecclesiastes that "the profit of the earth is for all."

The earth is the Lord's! Consider what this means. It means that

• our God is not a pale abstraction.
• Our God is not a remote being who sits enthroned on some ethereal height, absorbed in the contemplation of his own perfection, oblivious to this grubby realm in which we live.
• Our God is concerned with the tangible, with the mundane, with what goes on in the field, in the factory, in the courthouse, in the exchange.
• Our God is the maker of a material world — a world of eating and sleeping and working and begetting, a world he loved so much that he himself became flesh and blood for its salvation. In this sense, then,
• our God is eminently materialistic, and nowhere is this more clearly recognized than in the Bible, which, for that very reason, has always been a stumbling-block and an offense to those Gnostics, past and present, whose delicacy is embarrassed by the fact that they inhabit bodies, and for whom religion is essentially the effort to escape from or deny that fact.
• Our God is not a dainty aesthete who considers politics and economics subjects too crass or sordid for his notice.
• Neither is he a capricious tyrant who has enjoined an order of distribution that condemns retirees after a lifetime of toil to subsist on cat food while parasitic sybarites titillate palates jaded by the most refined achievements of the haute cuisine. It is men who have enjoined this order in denial of his sovereignty, in defiance of his righteous will.

The earth is the Lord's! To the biblical writers, this was no mere platitude. They spelled out what it meant in concrete terms. For them, it meant that the material universe which had been provided as a storehouse of natural opportunity for the children of men was not to be monopolized or despoiled or treated as speculative merchandise, but was rather to be used reverently, and conserved dutifully, and, above all, maintained as a source from which every man, by the application of his labor, might sustain himself in decent comfort. It was seen as an inalienable trust, which no individual or class could legitimately appropriate so as to exclude others, and which no generation could legitimately barter away.

The earth is the Lord's! With the recognition of this principle comes the recognition of the right of every man to the produce which the earth has yielded to his efforts. As the Apostle Paul says in his first letter to the Church at Corinth, if the ox has a right to a share in the grain which it treads out, surely a human being must have a right to the fruits of his labor. For the exercise of this right, he is, of course, accountable to God — but against the world, it holds.

To one who takes seriously, as I do, that insight about human nature which is expressed in the doctrine of original sin, there can be nothing self-evident about the rights of man. In the words of my friend, Edmund A. Opitz, "the idea of natural rights is not the kind of concept which has legs of its own to stand on; as a deduction from religious premises it makes sense, otherwise not." The French Revolution and its culmination in the Reign of Terror demonstrated that humanistic assumptions afford no secure foundation for the concept of human rights. That concept, for the believer, can be neither understood nor justified except in terms of what Lord Acton so eloquently speaks of as "the equal claim of every man to be unhindered in the fulfilment by man of duty to God."

This is what it comes down to: How can a person be "unhindered in the fulfilment of duty to God" if he be denied, on the one hand, fair access to nature, the raw material without which there can be no wealth; and on the other, the full and free ownership of his own labor and its earnings?

You who have studied the history of the Peasants' Revolt in sixteenth century Germany know that in calling for the abolition of serfdom and the restoration of the common lands, the peasants were simply voicing demands which were logically implied by Luther's doctrine of the priesthood of all believers — that the service of God to which all the faithful are elected requires, as I have said, access to the land and its resources, and the free disposal of one's person and of the guerdon [editor's note: reward] of one's toil. Despite the excesses that accompanied this uprising, Luther's part in the suppression of a movement which stemmed logically from his own teaching must always be a source of pain to those of us who revere him for his spiritual genius and integrity.

The earth is the Lord's! The same God who established the just authority of governments has also in his providence ordained for the major source of revenue. Allow me to quote from Henry George:

In the great social fact that as population increases, and improvements are made, and men progress in civilization, the one thing that rises everywhere in value is land, we may see a proof of the beneficence of the Creator . . . In a rude state of society where there is no need for common expenditure, there is no value attaching to land. The only value which attaches there is to things produced by labor. But as civilization goes on, as a division of labor takes place, as men come into centers, so do the common wants increase and so does the necessity for public revenue arise. And so in that value which attaches to land, not by reason of anything the individual does, but by reason of the growth of the community, is a provision, intended — we may safely say intended — to meet that social want. Just as society grows, so do the common needs grow, and so grows the value attaching to land — the provided fund from which they can be supplied (George 1889).

On another occasion he wrote:

The tax on land values is the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses (George, P&P, 421).

And yet, my friends, in the topsy-turvy world in which we live, this provided fund goes mainly into the pockets of speculators and monopolists, while the body politic meets its needs by extorting from individual producers the fruits of honest toil. If ever there were any doubt about the perversity of human nature, our present system of taxation is the proof! Everywhere about us, we see the ironic spectacle of the community penalizing the individual for his industry and initiative, and taking away from him a share of that which he produces, yet at the same time lavishing upon the non-producer undeserved windfalls which it — the community — produces. And, as Winston Churchill put it, the unearned increment, the socially-produced value of the land, is reaped by the speculator in exact proportion, not to the service, but to the disservice, done. "The greater the injury to society, the greater the reward."

We hear constantly a vast clamor against the abuse of welfare. I do not for a moment condone such abuse. Yet I ask you, who is the biggest swiller at the public trough?

• Is it the sluggard who refuses to seek work when there is work available?
• Is it the slattern who generates offspring solely for the sake of the allotment they command?
• Or is it the man — perhaps a civic leader and a pillar of his church — who sits back, and, with perfect propriety and respectability, collects thousands and maybe even millions of dollars in unearned increments created by the public, as his reward for withholding land from those who wish to put it to productive use.

Talk about free enterprise! This isn't free enterprise; this is a free ride.

But if that same person were to improve his site — if he were to use it to beautify his neighborhood, or to provide goods for consumers and jobs for workers, or housing for his fellow townsmen — instead of being treated as the public benefactor he had become, he would be fined as if he were a criminal, in the form of heavier taxes. What kind of justice is this, I ask you? How does it comport with the Divine Plan, or with the notion of human rights?

Let me make this clear: Acquisitiveness, or the "profit motive," if you will, is a well-nigh universal fact of human nature, and I have no wish to suggest that the land monopolist or speculator has any corner on it. Even when I speak of him as a parasite, this is not to single him out for personal moral condemnation. He is not necessarily any more greedy than the average run of people. As my late friend, Sidney G. Evans, used to say: "if you have to live under a corrupt system, it's better to be a beneficiary than a victim of it." But the profit motive can be channeled in ways which are socially desirable as well as in ways which are socially destructive. Is it not our duty to do everything we can to build an order without victims one in which the profit motive is put to use in such a way that everybody benefits?

I do not harbor the illusion that the millennium is going to be ushered in by any program of social betterment. My theological orientation does not happen to be one which minimizes the stubbornness of man's depravity. Yet to make the depth of human wickedness an alibi for indifference to the demands of social justice is to ignore the will of him who said:

Take away from me the noise of your songs;
to the melody of your harps I will not listen.
But let justice roll down like waters,
And righteousness like an ever-flowing stream.
(Amos 5:23-24)

To some of you, the promotion of specific programs for social justice is seen as part of the responsibility of the institutional church; to others it is not. But all of us, I am sure, can agree that the individual Christian (or Jew or Moslem, Hindu or Buddhist, as the case may be) has a solemn moral obligation to study the issues carefully, and then involve himself strenuously in whatever social and political efforts his informed conscience tells him best advance the cause of right.

O shame to us who rest content
While lust and greed for gain
In street and shop and tenement
Wring gold from human pain,
And bitter lips in blind despair
Cry, "Christ hath died in vain!"
Give us, O God, the strength to build
The city that hath stood
Too long a dream, whose laws are love,
Whose ways are brotherhood,
And where the sun that shineth is
God's grace for human good.*

The earth is the Lord's!

* From "O Holy City, Seen of John" by Walter Russell Bowie. Copyright, 1910, by A. S. Barnes and Company. Quoted by permission.

Henry Ware Allen: Special Privilege

Special Privilege

BY HENRY WARE ALLEN
from Land and Freedom, 1938

As our time honored political maxims become hackneyed they are very apt to pass into what Grover Cleveland would call innocuous desuetude. We subscribe to the sentiment that "eternal vigilance is the price of liberty" and yet little is done to counteract those aggressive forces which nullify that freedom which we profess to prize so highly. Even the prayer, "Thy Kingdom Come," is repeated as a mere wish that something good would happen rather than with a determination to bring about those righteous conditions which make for a heaven on earth. Possibly the most neglected of all of our national ideals is our professed adherence to that most democratic of all maxims, "Equal rights for all and special privileges for none." For at the present time our country is honeycombed with special privilege that has become so entirely entrenched as to be regarded on all sides as vested right. Special privilege is condoned by force of its familiarity. Like vice it is endured, then pitied, then embraced.

There lived in a Colorado city years ago a housewife who made convenient use of coal cars on the side track across the street from her dwelling with which to replenish her stock of fuel. This she did without any qualm of conscience but as a special privilege which, by the sanctifying touch of time had grown into a vested right. This woman doubtless was punctilious in the ordinary obligations of life and would have hotly resented any statement to the effect that she was stealing coal. She was guided by that all too common kind of honesty which is based upon expediency rather than principle. Not on any account would she have withheld what was due from her to a neighbor who would have suffered by her delinquency, but the advantage to her of getting this coal was so great and the loss to some impersonal owner of same, mine, railroad, or smelter, was relatively so negligible that the argument was all in favor of her acting in her own interest without question. No personal equation was involved and if at first there had been any hesitation on her part of this practice, that was long ago a thing of the past. But the railroad company put a watchman on guard and her supply of fuel was thereby stopped. She then turned to the local charity organization with request for a continuation of the supply which had thus been rudely taken from her and the very righteous indignation with which she told her story was ample proof of entire absence of comprehension on her part that she had been stealing.

This incident, which is a true story, illustrates very nicely the evolution and the nature of that special privilege which eventually becomes a vested right. And if the searchlight of analysis is turned upon our social system we may be surprised to find the presence of special privilege in unexpected places and of a volume that is, in the aggregate, enormous.

As a basis for this inquiry it may be well to state the fundamental truth that property may be secured in three ways only; first, by labor; second, by gift; and third, by theft. If this test is repeatedly kept in mind, the task will become easier. One of the commonest forms of special privilege is that which is provided under ninety-nine year leases on valuable business property sites. These leases convey to the owner of the land a stipulated income after the tenant has paid all taxes and expenses. In the parlance of political economy this revenue consists of what John Stuart Mill defined as unearned increment, a value which is produced by no individual but which is purely the result of population reflected upon desirable locations. For this revenue to be turned over to individuals as is now the unquestioned custom in all of our large cities and to an amount of billions of dollars annually is a procedure which is precisely in the same class as the stealing of coal from the railroad car by the Colorado housewife.

A much larger source of public revenue which is diverted to individuals is that of the rent of valuable property in excess of a fair interest return upon the intrinsic value of improvements on the property. This applies to practically all property located at the center of our large cities and involves enormous revenues. There is a mixture here of legitimate return on capital invested with the unearned increment which belongs absolutely to society but the case is not less clear on that account.

Another prolific source of public revenue which is diverted to individuals is that which comes from the lucky possession of oil wells. This possession frequently gives incomes of thousands of dollars daily to those who have no more claim on such revenue than is involved in the possession of the land upon which the wells were developed. The wealth that has by this means been given to certain sections of the country and certain groups of people has run into the billions of dollars. The Osage tribe of Indians in Oklahoma are said to have been made the richest people in the world due to this special privilege. Such beneficiaries are no more justly entitled to the revenue which they receive than was the Colorado woman justified in stealing coal from the railroad car. It will be said that the oil industry involves a great deal of capital and that many dry wells are paid for before a single producing well is developed. This is true and therefore makes the proposition somewhat more complicated but does not alter the conclusion.

Another source of revenue which diverts public funds into private hands is speculation in land. Purchase of inside property sure to increase in value is the one investment that has been invariably recommended by shrewd financiers. This speculation is far greater than has been generally realized. More than one-half the area of New York City consists in vacant lots which are held out of use for speculative purposes, and the same is true of all our larger cities. Incidentally, this speculation has the effect of enhancing the selling price of desirable land to artificially high figures. When land which is purchased with a hope of subsequent rise in value, the investor practically lays a trap by which he may secure values that rightfully belong to the community. And this process makes an artificial scarcity of land with consequent artificially high cost to those who must use it. This process of securing a profit, of getting something for nothing, is persistently the same in character as that by which the Colorado housewife secured her supply of coal. Here again objection may be interposed to the effect that land frequently has to be sold for less than it cost. This is an objection that was raised by no less an economist than Francis A. Walker, the foremost critic of Henry George during his lifetime. General Walker exclaimed, "Mr. George has much to say about unearned increment: He says nothing, however, about unrequited decrement." Mr. George's rejoinder to this was an expression on his part of his inability to discuss the problem with one who spoke of unrequited decrement in something which originally had no value. In other words, so far as society is concerned its interest is only in the rental value which is produced from year to year and which rises or fall accordingly as population grows or wanes. The important fact is that this increment, whether large or small, belongs to the community which produced it.

The most spectacular form of special privilege which we have to deal with today is that provided by the protective tariff. This protection enables the America manufacturer to secure an artificially high price for his product. The common argument in support of the protective system is that the American standard of living must be maintained by this artificial means, but this argument falls to the ground, if at the same time, we permit any improvement in labor-saving machinery which naturally has far greater effect upon the labor market than is produced by the competition of merchandise imported from abroad. The enormity of special privilege due to the tariff is perhaps more conspicuous in the State of Pennsylvania than elsewhere, a single family in Pittsburgh, the direct beneficiaries of the tariff on aluminum, being reputed to be worth in excess of $2 billion. There will be found that, with a few rare exceptions, the great fortunes of America are based upon special privilege of one kind or another.

Although there are many minor sources of special privilege which are embedded in our political and social institutions, those above enumerated are the principal ones.

The special privileges provided by legislative action at Washington are in a different class from those which have become a regular part of our system of taxation but are none the less to be condemned. The most flagrant of these in recent times was the appropriation by Congress and approved by President Hoover, of $500,000,000 of tax payers' money for the specific purpose of stabilizing or artificially enhancing the price of wheat, cotton, and other farm products. It was presumed by the makers of this law that it would have the effect of giving artificial advantage to the farming class, which would offset in a measure the special privileges which had been given so generously to Eastern interests by means of the protective tariff. The plea for this farm legislation was repeatedly based upon that consideration. It so happened that even the immense waste of money involved by the farm marketing act was negligible as an influence in the world wide markets and that it did not affect in any considerable degree the law of supply and demand upon the prices of the agricultural products which were supposed to be favored. But the very fact that this legislation was put through with little opposition furnished a very good illustration of the fact that special privilege legislation is regarded as perfectly legitimate. And this has been further illustrated in monstrous degree by the New Deal legislation under President Roosevelt.

There is everywhere consciousness of a mysterious force which is responsible for easily acquired fortunes on one hand together with an increase of unemployment and consequent lower incomes on the other hand. Each succeeding census report makes more appalling this undemocratic and unjust condition in our social fabric.

If prosperity is to be secure, there must be an end to special privilege of every kind, and a system of taxation inaugurated in place thereof which shall be based upon justice to all. Henry George has demonstrated how this should be done.

The Land Questions: #27 -- Financing a New Subway Line

27. A new subway line costs $2 billion.  Suppose that its construction increases the surrounding land values by $2 billion. (Assume 5 miles long, 10 stations, 0.5 mile radius, average lot size of 0.10 acre.   How should the new subway line be financed?

A. Taxes on sales of groceries, clothing, etc. within those 1/2 mile radius areas

B. Taxes on sales of groceries, clothing, etc., all over the city the subway line connects to

C. Taxes on sales of services within those 1/2 mile radius areas

D. Taxes on sales of services of all kinds, all over the city the subway line connects to

E. Taxes on wages of those working in those 1/2 mile radius areas

F. Taxes on wages all over the city the subway line connects to

G. Taxes on wages of those living within the 1/2 mile radius areas

H. Taxes on capital gains and dividends of those living within the 1/2 mile radius areas

I. Taxes on capital gains and dividends of those with residence anywhere in the city

J. Taxes on all real estate within those 1/2 mile radius areas

K. Taxes on all real estate, all over the city the subway line connects to

L. Taxes on just the buildings within those 1/2 mile radius areas

M. Taxes on all the buildings, all over the city the subway line connects to

N. Taxes on the land value within those 1/2 mile radius areas

O. Taxes on the land value, all over the city the subway line connects to

P. Transfer taxes on either or both of buyers and sellers whenever a property within the 1/2 mile radius is sold

Q. Transfer taxes on either or both of buyers and sellers whenever a property anywhere within the city is sold

R. An inheritance tax when a house or commercial property is transferred from a decedent to a survivor.

S. Your suggestions?

 

The Land Questions: #23 -- Financing Operating Costs of Public Transit

23.  Fares on local public transportation may not be high enough to finance all the costs of providing the transportation.  Does that mean that it is a poor investment, or are there other logical and just ways of funding it?

The value of land is the day-to-day product of the community

The taxation of all property at a uniform rate is made necessary by the constitutions of about three-fourths of the States of the Union. The taxes on chattels, tools, implements, money, credits, etc., find their condemnation from the Single Taxer's point of view in those ethical considerations which differentiate private from public property. Where there arises a fund known as "land values," growing with the growth of the community and the need of public improvements, it is not only impolitic, it is a violation of the rights of property to tax individual earnings for public expenses.

The value of land is the day-to-day product of the presence and communal activity of the people. It is not a creation of the title-holder and should not be placed in the category of property. If population deserts a town or portions of a town, the value of land will fall; the land may become unsalable. When treated as private property the owner of land receives from day-to-day in ground rent a gift from the community; and justice requires that he should pay taxes to the community proportionate to that gift.

"Land value" or "ground rent" as the older economists termed it, is a tribute which economic law levies upon every occupant of land, however fleeting his stay, as the market price of all the advantages, natural and social, appertaining to that land, including necessarily his just share of the cost of government.

excerpt from The Single Tax Year Book (1917)

The Land Questions: #22 -- Infrastructure and Land Values

22.  The creation of a new subway line raises the land values near each of the stations.  Who should reap the benefit?

A. People who own homes there

B. People who own businesses there

C. People who own land there, whether or not there is a highest-and-best-use building on it

D. Corporations who own land there

E. Universities and other private landholders who own land there

F. Foreign corporations and private equity funds who own land there

G. Pension funds and sovereign wealth funds who own land there

H. The community as a whole, since the community paid for it

 

Download Fred Harrison's book, "Wheels of Fortune"

The Land Questions: #21 -- Paying for Transportation Infrastructure

21.  The creation of a new subway line raises the land values near each of the stations.  Who should pay for the building of the subway line?

A. Riders of the new subway line

B. Riders of all subways in the system.

C. Riders of all mass transit in the metro area.

D. Drivers of cars and trucks, all over the metro area, via taxes on their fuel purchases (that is, in proportion to miles driven and the fuel efficiency of their vehicles)

E. Drivers of cars and trucks, all over the metro area, via an annual surcharge on their registration

F. Drivers of cars and trucks, all over the metro area, in proportion to the value of their cars, owned or leased

G. Drivers of cars and trucks, via tolls when they use bridges and tunnels, or HOV lanes, or certain highways

G. The taxpayers, via increased sales taxes on their purchases

H. The tourists and business travelers, via hotel occupancy taxes and taxes on rental cars.

I. Passengers in taxis, via a surcharge on their fares.

J. The homeowners, via taxes on their homes

K. Drivers, commercial and individual, via taxes on fuel purchased within the city

L. Employees all over the metro area, via a payroll tax

M. The tenants of commercial buildings in the heart of the central business district

N. All landholders, paying equally (a parcel tax)

O. All landholders, in proportion to the size of their lots

P.  Landholders, in proportion to the value of the land they hold, without regard to the buildings or their contents.  Those whose land values are raised by their proximity to the new line will see a proportional increase in their share of the tax burden; those far from the new line will not.

Q. Your suggestions?

The Land Questions: #20 Affordable Housing

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

A. Lotteries

B. Community Land Trusts

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

D. Rent control

E. Shame

F. Fundraisers

G. Habitat for Humanity

H. Relaxed mortgage lending rules and more private mortgage insurance

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

J. Your suggestions?

The Land Questions: #17 -- Middle East

17. There's a conflict in Israel.  What's the real issue?

A. Respect

B. Armageddon / Apocalype

C. Land -- everyone needs secure access to some if they are not to be subject to others

D. Differences in religious tradition.

E. Water

F. Your suggestions?

A 1938 NYT Letter to the Editor: Collecting Ground Rent

I came across this rather good letter to the editor, from 1938.  (Trinity Church Corporation, a major landlord in downtown Manhattan, was the subject of a NYT article this past week, as well as the subject of a major series in the NYT in December, 1894):

1938-09-03 Letters to The Times

Collecting Ground Rent
Single-Tax System Regarded as No Detriment to Building

TO THE EDITOR OF THE NEW YORK TIMES:

Fabian Franklin, in his letter to THE TIMES discussing the demolition of John D. Rockefeller's Harlem tenements in order to save taxes, writes:

"That objection is simply that virtual abolition of land ownership, which the single-tax plan is designed to effect, would make the building of houses in a city an extra-hazardous business, because, under the single-tax regime, in the great majority of cases the investment would result in a disastrous loss to the owner of the building.  I was neither blaming nor praising Mr. Rockefeller for the demolition of Harlem tenements."

What is the so-called single-tax system?  It is the collection by the government, through the taxing officials, of the entire economic or ground rent of land and the repeal of all taxes on buildings and other products of labor and capital.  That ground rent is estimated to be 9% of the capital value of the land.  New York City is now collecting one-third of this ground rent.  The market value of the lots is the remaining two-thirds, capitalized.  Dr. Franklin's thesis is that if the entire ground rent is collected no one would erect buildings, because "in the great majority of cases the investment would result in a disastrous loss to the owner of the building."

Some of the finest buildings in New York City are erected on leased land and the lessee pays the ground rent 100% besides a tax on the building.  There are hundreds of buildings erected by lessees of lots owned by Trinity Church, Astor estate, Rhinelander estate, Sailors Snug Harbor and others.  The lessees must pay all the taxes, both on land and building, amounting to 3% of the assessed value of both, and to the landlord 6% of the market value of the land.

Thus the entire ground rent is paid by the lessee, but only one-third to the government representing the people who made that value by their presence and activities, the remaining two-thirds to the landlord.  Notwithstanding that they are thus obliged to pay 100% of the economic rent, bankers and business men erect buildings costing millions.  Under the Henry George plan they would have to pay less, for the taxes on these costly structures will have been repealed.

Perhaps if Mr. Rockefeller had not been obliged to pay taxes on the buildings he might not have pulled them down; or, if he had, would have erected better buildings in their place in order to get a return on his investment in buildings.  The ones who will benefit most from the adoption of the Georgian philosophy are the owners of humble homes.  The average small homeowner's house is assessed for at least twice the assessed value of the lot.  If the house is relieved from taxation and the lot taxed the entire ground rent, his tax will be less than it is now.  The difference will be made up from vacant lots and lots that are worth more than the improvements.

After all, the building of houses is like any other business.  The builder takes the risk of lessened demand because of changes in fashion, obsolescence, competition.  It is estimated that 95% of new businesses ultimately fail. With the adoption, however, of the philosophy of Henry George, commonly called the single tax, failures in the housing and other businesses will be much fewer.  This is because neither houses nor goods nor anything else will be taxed.  The collection of the entire ground rent will not lessen the area of the surface of the earth one inch.  On the contrary, it will open to occupation and use land that is now held for speculation purposes. 

The taxation of any product of labor and capital will add the amount of the tax to the price, lessen demand and thus curtail production.  The result is unemployment and misery.

Frederic Cyrus Leubuscher
Essex Fells, N. J., Aug. 31, 1938

Land Speculation

Continuing through some old files, I came across this eloquent statement in the minutes of an executive committee meeting for the Robert Schalkenbach Foundation:

"Middle income homebuyers, especially, are having to pay a lot more for their homes because of the inflation in land prices.  They are having to pay more for their financing, too, because financing also reflects land prices.

What land speculators can get for their land, they can get because of the enormous expenditures of tax money to make that land usable.

I do not think the American conscience is sufficiently sensitive to be aroused because land speculators get rich at the expense of the government, because the public has come to regard the government as a cow to be milked.  It would, therefore, be unwise to place the emphasis on how speculators get rich at the government's expense.  Rather ... we should emphasize that the homebuyers are the ones who have to pay, have to dig deep into their savings to pay speculators more for the land, not because the speculators did anything to earn a higher price, but because taxpayers spent millions to make it better."

-- Perry Prentice, 3/5/1965

California, with Prop 13, should take note.  Anyone who wants a more stable economy should take note.  Anyone who would like to see the cost of living for ordinary people be stabilized and reduced should take note.

Franklin Hichborn: The Single Tax -- with a good graphic

I came across this in the San Jose Letter, from late 1895.   Over the course of the year of issues online (about 430 pages), there were just a few articles specifically about the Single Tax.  But I continue to be amazed at how much of the popular literature of the 1890-1920 period has as its context the assumption that the reader knew of and was generally comfortable with the ideas of Henry George.  They were in the air people breathed, well-known to all!  What I find interesting, as a long-ago American Studies major, is that a 21st century reader who isn't familiar with George's ideas, reading that literature, would miss out on most of the conversation -- and perhaps never notice the gap!

The graphic [woodcut, or "cut"] is definitely a keeper.  It explains a lot of things.  Location, location, location. This political cartoon covers it pretty well.  (See also a recent video here.)  While it isn't signed, it makes me think of J. W. Bengough's cartoons, which appeared in The Single Tax Review for a number of years in the first decade of the 20th century.  Bengough was also the author of the wonderful Up-to-Date Primer: A First Book of Lessons for Little Political Economists.

I'm assuming that Franklin Hichborn, editor of The San Jose Letter, wrote this piece, inspired in part by the woodcut in the SF Star.  The comparison of the 4 lots might be compared to Louis F. Post's lecture notes, at http://wealthandwant.com/docs/Post_Lectures.htm, starting at Chart 28.

The island analogy is prominent at http://www.wealthandwant.com/.  Check out "Robinson Crusoe" and "new country" in the "themes."

 

THE SINGLE TAX.

Through the courtesy of James H. Barry, publisher of the San Francisco Star, we are enabled to publish the cut accompanying this article, which gives, as the Star expresses it, the "Single Tax in a nut shell." In the near future a series of articles on Single Tax will be published in the Letter, which, besides stating clearly what the Single Tax is, will give, which will be more important, what the Single Tax is not. The confusion among the people on this very simple subject, is due in the main, I fancy, to their misunderstanding of the term rent. It is proposed to show what rent is, and, by it, what is meant by the Single Tax.

Any old farmer knows, and common sense will tell the inexperienced, that in a 10 acre field, more grain can be raised by planting a bushel of seed than a quart, more by plowing the land and harrowing, than by omitting the plowing, more by having the field fenced than by allowing cattle to run over it. In a word it pays to expend a certain amount of labor and capital upon our 10 acres. But it will be just as readily recognized that the thing can be over done, that the field can be plowed so much that the last plowing does not pay, that more seed can be sown that will be justified by the returns. There is, than a point in the culivation of our field where a given amount of seed and a given amount of plowing will yield the best returns, a point beyond which it will not pay the farmer to go, where the return will begin to be deminished in proportion to the outlay. In a word, a point of deminishing returns.

Now, suppose a community to be living on an island which has no communications with the outer world. Suppose the food of the community to be, in the final count, wheat, and suppose our island to have four grades of land, one producing at the point of diminishing returns 30 bushels to the acre, one 28, one 26 and one 24.  Here is our land:

30 bushels to the acre	28 bushels to the acre
26 bushels to the acre	24 bushels to the acre

So long as the 30-bushel land will supply the wants of the people there will be no rent on our island.  If the 30 bushel tract is owned by ten people they will compete with each other for tenants until practically nothing is paid for the use of the land. 

But when the population of our island increases to such an extent, (and by the way, it is bound to increase so long as there is free land) that the 30 bushel land will not supply the wants of the inhabitants, the 28 bushel land must be cultivated. The 30 bushel land is then in demand, for those cultivating it will, with the same outlay of labor and capital, get 2 bushels to the acre more than the 28 bushel land, and the ten owners may and will charge all they can get for its use. This will be two bushels of wheat a year or the difference between the yield of the two tracts. These two bushels will be rent.

When the combined 30 and 28-bushel tracts fail, owing to the steadily increasing population, to supply the island with wheat, the 26-bushel land must be cultivated. The owners of the 30-bushel tract will be able to get 4 bushels a year rent, the owners of the 28-bushel tract 2 bushels. When increasing population brings the 24-bushel tract into cultivation, 6, 4, 2 bushels will be charged, plus the amount which the necessities of the people, enable the owners of the 24-bushel land to charge them.

This, then, is the way rent originates. Dr. Walker defines it: The remuneration received by the land-owning class for the use of the native and indestructible powers of the soil, or, as it might be expressed, for the use of natural agents.

Our wheat producing island presents the doctrine of rent in its simplest possible form. "Land and natural agents" includes the arable, pasture and timber lands, mineral deposits, water privileges and building sites. When one piece of land becomes valuably [sic] for any reason, to a community, the person enjoying its advantages can give, and still be able to compete with his neighbor occupying land less favorable situated, the difference between the productiveness of the two tracts — rent. Who should receive this difference? Our present system says individual land-lords. Henry George says the people. He would collect this rent from land holders. This would be sufficient to meet all the requirements of national, state and municipal governments. It would be a single tax.

We have scarcely room to state them here, but briefly a few of the things the single tax is not: It is NOT a tax on acreage. It is a tax on land values. If farmer "A" has a 100-acre farm valued at $10,000, it means that the difference between the productiveness of that farm and an equal amount of no-rent land is, at our present rates of interest about $800. If city land—lord "B" has a 25-foot lot valued at $100,000 it means that lot is worth to the community, from its situation or for other causes, $8,000 a year more than the non-utilized land.  The ''single tax" on the 100 acres would be then $800 and on the 25-foot lot $8,000 a year. Farmers do not seem to be able to grasp this. In New Zealand the people are blessed with a land system resembling very much the single tax: and yet, the very term, single tax, frightens the farmer of that progressive island as badly as it does the prune-growers of our own Santa Clara valley.

Rent is NOT interest, insurance, taxes as they are, or water-rates, although they are all paid by the honest plodders of the community under the name, rent. Did it ever occur to you, my honest friend, that the landlord, before whom you doff your greasy cap so humbly, and who boasts that his taxes are so much while yours are nothing, never paid a tax-bill on rented property in his life. You pay it for him. He is your agent. He figures out your rent thus:

"The land is worth so much, interest on that (this is rent) the building so much interest on that (this is interest) insurance, so much, water-rate so much, taxes so much. I can allow tenant to have the place for the sum of these."

Thus you pay the rent, interest, insurance, water rates, taxes, under the generality "rent." The landlord pays nothing in the shape of water rates, insurance or taxes. He collects interest on the money invested in the buildings, which we will not pass upon. He collects the economic rent of the land and appropriates it to his own use, which is robbery.

One word on the difference between real and personal property, and we will leave you, my honest friend, to accumulate your landlord's taxes for next year. I paid five cents for the pen-holder with which I am writing this. The man I got it from gave me title to it, which he had purchased from some one else. This some one else, in his turn had acquired title by purchase, and if we follow the title back far enough, we will find the man who first owned the pen-holder, who did not purchase it,— made it. The original title, then, to this pen-holder, rests in human labor. It is so with every piece of personal property: this paper, ink, desk, house — the title to them all is the same — human labor. And, many reforming unmentionables to the contrary, every man is entitled to the results of his own exertions.

But how about the land upon which this building is situated? A. owns it. Where did "A" get his title? From "B." Tracing this title back, shall we find it resting on human labor? Not at all. No one made this land. Some one took it; gave title to some one else, and that title stands. It rests in force, fraud or nothing.

To sum it up: Notice that the blessing of rent did not come to our wheat-producing island until the increasing population, the people, made the land valuable. The million-dollar blocks in San Francisco would not be worth $1,000,000 if the people who have built up the city had not made them so. Now, since there can be no private title acquired to land that will stand the test of reason, since the very rent is due to the people themselves, and arises from and increases with population, we say that the people are entitled to this rent. Can you give one reason why individual proprietors should take it? Can you give one valid reason why people should pay it to them? If you cannot, you must admit that the economic rent of a nation, the unearned increment of land, belongs to the people. As this rent would more than pay the taxes of the nation, no other tax would be necessary. Thus you believe in the wisdom of the single tax. What are you going to do to secure it?

Cut the accompanying picture out; hang it up where you can conveniently see it, and consult it every time that, after stretching and pinching, and starving yourself and family, you have failed to make both ends meet.

F. H.

Who are the Criminals? --Henry George, Jr., 1901

I am including this because I find it timely and timeless; because it provides a good simple mathematical look at the perversity of our current tax system, and because it illustrates my notion that when Leona Helmsley said "WE don't pay taxes; the little people pay taxes," she was not describing tax evasion but actual tax structures.

Henry George, Jr., was a U. S. Congressman.  His most famous writing is "The Menace of Privilege." 

WHO ARE THE CRIMINALS?

BY HENRY GEORGE , JR.
Copyright, 1901, by The Abbey Press, 114 Fifth Avenue, New York

I.    Who are the Criminals? 5
II.   French Aristocracy of Privilege 6
III.  New York Aristocracy of Privilege 10
IV.  Robbery of Masses by Classes 12
V.   Nature and Extent of Robberies 13
VI.  How to Stop the Robberies 18
VII. The Criminals 23

I.    WHO ARE THE CRIMINALS?

In considering the problem of how to check or control vice and crime in New York the question at once raised is: Who are the criminals? Who are they who cause these dreadful evils in the community? For unless we know exactly where the disease lies how can we attempt a remedy?

II. FRENCH ARISTOCRACY OF PRIVILEGE.

When the French Revolution broke loose the people followed the lead of men who seemed no better than a pack of devils, for they maimed, they brutally tortured and they slew. Women, whose only offense was that they were members of an arrogant and grinding aristocracy, were stripped naked, treated with every indignity and killed with every mark of ferocity. Old men and young children belonging to the upper classes were butchered, and persons of blameless life and humane intention were trampled under foot when they attempted to stay the carnival of blood.

Who will dare say that these revolutionary leaders, these butchers, were not criminals — criminals whose bloody hands must shine down through history? They were men turned to monsters; brutes with human intelligence, striving for new ways to torture and kill.

But whence came they? Not from without. They sprang up within. They represented the spirit of retaliation — of fiendish retaliation for the centuries of wrong done them and theirs. They were the progeny of poverty made by robbery.  Their deeds were the deeds of monstrous criminals, but they themselves were the spawn of hideous injustice — an injustice that gave to the few riotous feasting and gorgeous raiment and to the many rags and black bread filled with maggots.

The aristocrats during centuries of power had appropriated the soil of France, and all other Frenchmen had to purchase the privilege of living in their native country.  Not content with this, the upper classes had thrown upon the masses all those heavy taxes which it was the plain intent only the landowners should bear. They shifted upon the common people all the expenses of an extravagant, aristocratic government, and through ground rents sucked away all the people's remaining substance, save just enough to keep them alive and at work. Who were making the masses so poor and wretched was as plain as day. The masses themselves could see, and when they raised the sword against the aristocracy all hell seemed to break loose.

Who were the criminals? Why, of course they were criminals — horrible, revolting criminals — who did this guillotining, who committed these butcheries.

But who made these criminals? Clearly those who bore so heavily upon the people — the aristocrats, who kept the people in fearful poverty and ignorance which bred the spirit of bloodthirsty tigers.

The aristocracy, therefore, were the primary, the real criminals.


III. NEW YORK ARISTOCRACY OF PRIVILEGE.

I wish to proceed with greatest caution, with utmost conservatism. Yet candor compels me to ask: Have we not in our community an aristocracy of privilege — an aristocracy far more rich, far more powerful than was the aristocracy of old France? And have we not a corresponding poor class? Is it not true that half the population of Manhattan Island is living in what Ex-Mayor Hewitt rightly calls "those terrible tenements?"

That Prince of the Church, Bishop Potter, has proposed in the emergency that we have noonday prayer meetings. By all means, we all say. Let us bow ourselves before Almighty God and ask for relief from this social scourge. Yet what if, while we pray, we abate not the power of our aristocracy of privilege; what if we do nothing to mitigate the poverty of the million tenement dwellers?

The distinguished divine has also proposed a military police. If that were good, would not a local standing army be better? It would keep order, at least for a time. But would it cure the general poverty among the masses? Would it not rather act like a lid fastened down on a volcano — work well, until fire and molten stone and destruction belched forth? What then?


IV. ROBBERY OF MASSES BY CLASSES.

Assuming that we are sincerely trying to make civic conditions better, that we are seeking a cure (if there be a cure) for the general vice and crime in the community, should we not ask ourselves some plain questions? Is it not the truth that we have an aristocracy? Is it not the truth that we have a poor class? Is it not certain that the rich are growing richer and the poor poorer and more numerous?

I believe that there can be but one answer — yes.

Yet I can see no reason for this state of things unless it be that the classes are robbing the masses.


V. NATURE AND EXTENT OF ROBBERIES.

LET us consider how the classes may be robbing the masses into poverty.

It is said that when the first Dutchmen came sailing into New York Bay they bought Manhattan Island for $24. That was for the land alone, no houses or other improvements being here. Today the selling value of the bare land of this same Manhattan Island is at least $3,000,000,000. Those who possess the land of this island, now get what is equivalent to a ground rental of $150,000,000 a year, with this sum steadily swelling. The ground rental of Greater New York cannot be less than $225,000,000 yearly.

This vast sum is paid over to the landlord aristocracy — for what? For doing nothing. The people multiplied from a ship's crew to several millions in and about the island and behold! the vast value of land which in the beginning sold for but $24. The increment of value obviously has not been produced by individuals; it is entirely aside from and in addition to the value of improvements, which spring from human labor, which are produced by individuals. This increase in land value is a publicly-made value. It of right belongs to all the people. Do all the people get it? No, the few whom we recognize as the owners of this land claim that value and get it. The people at large in the community get nothing. Do not these landed aristocrats — of which the old French nobility were in many respects prototypes — rob the community? Do they not go far toward robbing a large part of the people into poverty?

Take another instance of robbery of the many by the few. Observe what we are doing about public franchises. A public franchise is a public right of way, a public highway. Modern civilization, with its intense centralization, its condensed population, and its interdependence of individuals, makes these highways of vital importance to the community. They are the arteries of the body-social, the channels of intercommunication and transportation, of heat, and water, and light, and power, and sewage. Were they suddenly destroyed, a large part of the population would die as quickly as a member of the human organism withers up and dies when the flow of blood is cut off from it.

Then if these public franchises, these public rights of way, these public highways, are so vital to the body-social, so necessary to the well-being of the people, what should be our policy toward them?  What is our policy toward them? Why, in the case of water and sewage we treat them as public property, operating them publicly through public officials. But what do we do in respect to the other franchises? What do we do regarding street railroads, telephones and telegraphs, electric lighting and heating and gas, and steam supply? All these public franchises are treated as if they were private franchises. Upon all these public highways we allow private individuals to set the claim of ownership; to make charge upon the people; make charge upon the body-social for its blood, as it were. And a conservative estimate of the annual value of these public franchises in Greater New York at this time is $30,000,000.

Here, then, we have two forms of grand, constant, continuous robbery of the people — an aristocracy of privilege appropriating public ground rents and public franchise values, so that a few of the population are enabled to live in palaces while a million crowd into tenements.


VI.   HOW TO STOP THE ROBBERIES.

Now the masses of the people of Greater New York lose annually by the appropriations of the landed and franchise aristocracy —

In ground rents	$225,000,000
In franchise values	30,000,000
While they are compelled to pay in various taxes for the support of local government	98,000,000
Which makes in all	$353,000,000

What shorter way is there to relieve poverty and to do social justice than to abolish the $98,000,000 of general taxes, which fall mainly upon industry or the fruits of industry and terribly hamper the masses of the people; and then what more simple than to appropriate for local governmental expenses that sum out of the $225,000,000 of publicly-made land values?  Why not further lighten the load of the masses by taking over into public ownership and management all public municipal franchises, just as are water and sewage now; and then why not cut down their cost of service to the public that $30,000,000 which now represents purely franchise value in the charges of the private corporations that possess and manage them?

For a third step, why not make these municipal utilities free to the public, meeting the expense of their operation by another appropriation of the publicly-made land values?

And for a fourth step, why not appropriate for an old-age pension to every citizen, rich and poor alike, for public parks, for public lectures and concerts, or for any other or for all such purposes — all that still remains of the publicly-made land values?

What would be the result of such a policy? It would be that all the people in Greater New York would be relieved of the burden of $98,000,000 of various taxes; that the great charge of the many branches of the public franchise service on the people would be entirely wiped out and abolished; and that the whole of land values, that is, of ground rents, would be enjoyed by all the people equally, being appropriated for public uses.

Would this make any difference in the community? The welkin is made to ring by the most influential of the tax-payers when, under present conditions, the taxation authorities raise or lower the tax rate even 1%. What, then, would happen if all taxation were lifted from the fruits of toil, if public utilities were made free, and if land values were to benefit, not a class, but the whole people?

Such a tax would be just, because it would fall on this publicly-made value; it would be certain, because land cannot be hidden or lessened in amount; it would force all unused or inadequately used valuable land into its highest use, for no one could afford to hold such land vacant for a speculation, as very many do now.

Land in Greater New York would therefore be cheaper — how much cheaper may be judged by the fact that two-thirds of the land within the city limits, though extremely valuable, is not now used.  This unused land would compete with the used land for users, so that land values in the community generally would fall. At the same time all building materials, being relieved of present taxation, would be far cheaper, making two of the chief elements for house building would be greatly less in cost, and consequently, larger, lighter, better dwelling accommodations in every way could and would be supplied to the masses of the people, and especially to the million now living in tenements.

What would help the poorest would be of direct and indirect benefit to all others in the community; and this would be but one of a large harvest of good results that the people would reap from such a policy.

The privileged classes, the aristocrats, would lose their privileges, but they would have no less rights than any and all other citizens of Greater New York.


VII.   THE CRIMINALS.

That able and public-spirited citizen, Mr. President Baldwin, of the Long Island Railroad, and Chairman of the Chamber of Commerce Anti-Vice Committee of Fifteen, has said that this is not the time for "idealist scheme of reform." But we are trying to put down vice and crime in the community; and the question is: Who are the criminals?

Let us be frank with ourselves: Who are the criminals? Are they the housebreakers, the unfortunate women who walk the streets and the police officials who take blood-money? Or are they those who rob the masses of the people into poverty — deep, biting, degrading poverty?

Are not the aristocrats of privilege, knowingly or unknowingly, the criminals we should first consider in an examination of civic disease in New York?

0-0-0-0-100

I have a family member who, when Herman Cain says "9-9-9," plays a sound bite of another voice shouting "nein! nein! nein!"

Georgists have a better proposal for how we ought to fund our common spending.

• 0% tax on wages
• 0% tax on sales
• 0% tax on corporate profits
• 0% tax on buildings and equipment
• 100% recovery of our commonwealth

This probably raises several questions in your mind:

• what is "recovery of our commonwealth"?
• how will it affect me?

Our commonwealth includes the value of land -- not the improvements made by the present or previous owner, but the value of the site itself, which is created by the gifts of nature; by the investment of the local, state and national communities in public goods and services (including most "pork"); by the presence of the community and its economic activity.  While good farmland may be worth $5,000 or $10,000 per acre, depending on climate and proximity to markets, suburban residential lots might be $35,000 to $1,000,000 -- or far more! -- per acre, and an acre in midtown Manhattan can be worth $250,000,000 or more.  The landholder doesn't create that locational value.

Our commonwealth includes the value of ecosystem services.  It includes the value of electromagnetic spectrum (the airwaves which most people would agree rightly belong to the American people, not to corporations).  It includes the value of water, particularly fresh water for drinking and water for irrigating crops and for corporate use.  It includes the value of government-granted privileges.  It includes the value of geosynchronous orbits -- those parking spots in space for satellites whose owners and customers would not want to see crashing into each other.  It includes the value of landing rights at busy congested constrained airports, such as LaGuardia or JFK, particularly at their rush hours.   It includes the value of scarce on-street parking in congested cities.  It includes the value of nonrenewable natural resources extracted from below the earth and the oceans, for 200 miles beyond our land borders.  It includes a whole range of other similar things.  

As you look at that paragraph, compare it to the 0-0-0-0 list above, and notice that it collects upfront certain values, and leaves the rest to those who produce.   It is direct taxation rather than indirect, and one could reasonably argue that it isn't even really taxation; rather it is more in the nature of a user-fee.

It is Natural Public Revenue.

Once one has sat with this idea for a while, it seems quite unnatural to permit the value to continue to accrue to private individuals, or to corporations publicly or privately owned, or to entities other than the community as a whole!

Recall how concentrated wealth is in the US: The 2007 SCF [the Federal Reserve Board's Survey of Consumer Finances] reported that aggregate net worth is "distributed" as follows:

• Top 1% of us have 33.8%
• Next 4% of us        26.6% [cumulative: 60.4%]
• Next 5% of us        11.1% [cumulative: 71.5%]
• Next 40% of us      26.0% [cumulative 97.5%]
• Bottom 50% of us    2.5%

Recall also that the Forbes 400 families are specifically and intentionally omitted from the SCF, and that Forbes estimates that they represent 2.5% of aggregate net worth. So add that 2.5% to the numerator and denominator.  And note, as Michael Moore did, that it is very similar to the value of the Net Worth of the bottom 50% of us.

And it seems quite unnatural to tax wages, and sales, and corporate profits, and buildings at all before we've fully collected Natural Public Revenue.

Will Natural Public Revenue be sufficient to meet all the needs of all levels of government? 

Quite possibly not, at least today when we are so reliant on a social safety net because current conditions have kept a significant share of our people from providing well for themselves.   But I regard it as altogether possible that within a generation or two, it could be quite sufficient, in part because it would have the effect of redistributing some of the wealth which today is pouring into the pockets of a relative few of us.

How much of corporate profits are coming from (quite legal) privatization of the value of natural resources, the value of being able to get away with polluting air, water and soil, and the value of other privileges which corporations -- public and private -- are used to enjoying?  One of the interesting findings in the SCF is that the value of privately held businesses [BUS] actually exceeds the value of publicly held ones [EQUITY] in household wealth -- and the value of both is highly concentrated:

                                    EQUITY          BUS              

[value, billions, 2007] $13,694.3    $14,893.7

• Top 1%            36.0%            62.7%
• Next 4%          30.5%            25.5%
• Next 5%            5.5%            12.4%
• Next 40%         19.6%         &#