Economic use of land 'to help achieve double-digit growth'
Taxing land would benefit KC
Two different economists considered two different places -- a nation and a city -- and reached the same conclusion: by recovering land value, society would motivate economic use of land which would promote desirable development while also protecting farmlands from being lost. We trim, blend, and append two 2010 articles from (1) The Kansas City Star, posted Jan 09, on KC by E. Thomas McClanahan, and (2) the Financial Express, January, on a Bangladesh conference, Dec 30, that featured Salim Rashid, an expatriate professor at the University of Illinois.
by E. Thomas McClanahan and the Financial Express
Taxing land would benefit KC
Mayor Mark Funkhouser caused a bit of a flap with his statement that he would consider repealing Kansas City’s earnings tax. Imagine, wanting to scrap a tax that brings in around $200 million a year -- about 40% of the city’s general fund. The guy must be nuts.
The earnings tax has helped squeeze money from people who work in Kansas City but live elsewhere, spreading the tax load beyond the city’s borders. But over time, it’s been an insidiously damaging tax, which is why a petition drive has begun that could lead to its demise.
The earnings tax creates a direct incentive for people to avoid living or working in the city. As University of Missouri economist Joseph Haslag showed in a 2006 study, it lowers people’s incomes and decreases the return on capital.
Haslag, commissioned by the free-market Show-Me Institute, followed the earnings-tax study with a second piece of research on how to replace it. His suggestion: A land tax.
So many of the taxes we pay are levies on productive effort, which tend to discourage activities and endeavors we should welcome. We want an economy that rewards wealth creation, development, hiring, and trade, but we tax incomes, structural improvements, payrolls, and sales.
These taxes, to varying degrees, tend to undermine their own foundations, as is obvious in the case of the earnings tax as we look back on decades of outflow from the city.
Probably the worst is the property tax, which encourages developers to throw up cheap structures or allow their buildings to deteriorate. If they put up something substantial, their “reward” is a larger tax bill -- one reason developers spend so much time trying to win abatements and other goodies from politicians.
Think of all the vacant, idle parcels around Kansas City and what would happen if City Hall made it “expensive to sit on land and speculate.”
A land tax would encourage investment. Property owners would be penalized for hoarding acreage and doing nothing. Speculators who own parking lots downtown -- where land taxes would be highest -- would have to develop their parcels or sell them to entrepreneurs capable of putting up profitable buildings and realizing the full economic potential of the location.
Replacing the earnings tax with a land tax would take many years. But that’s all the more reason to get started.
Economic use of land ‘to help achieve double-digit growth’
Economic use of land would help Bangladesh pave the path to a double-digit growth over the next three decades while also protecting its farmlands from being lost, said Salim Rashid. Key foundations for a 10% economic growth were higher rice production and promoting compact township.
"There can't be any more critical area than land to foster robust growth," Prof Rashid told a discussion sponsored by the Policy Research Institute (PRI).
The country should utilize the power of land value taxation to generate revenue and simplify land acquisition, Dr Rashid told the elite audience including academics, diplomats, and donor representatives.
He said land was expected to be a binding constraint to Bangladesh's growth as the country is losing 1.0-2.0 per cent of land every year.
He was upbeat that Bangladesh could emerge as a rice-exporting nation in three years, backed by technology, input market liberalization, and expansion of high-yield varieties.
Bangladesh had gone from 9.0 million tons to over 27 million tons in cereal production and practically attained self-sufficiency.
Dr Rashid advised the government to move toward free market for inputs, saying the appropriate use of inputs contributed about 75% of the yield of HYV varieties.
Sadiq Ahmed, PRI vice chairman, said the double-digit economic growth in Bangladesh was doable, given the fact that China did it while India was close to achieving that.
Mr Ahmed, who moderated the discussion, said that Bangladesh would have to look for new sources of growth beyond remittance and apparel exports as it sought to grow 10 per cent.
Prof Rashid did not favor the government's policy to subsidize fertilizer and grains for only 15% of the urban population, whose incomes are fixed and vulnerable. Some 30 per cent of Bangladesh's 162 million population are urban.
"Should the economic policy of 85% be dictated by the needs of 15%?" he asked.
Economic Adviser to the Prime Minister Mashiur Rahman attended the discussion as the chief guest. Among others were: FBCCI president Annisul Huq, chairman of PRI Zaidi Sattar, director general of Bangladesh Institute of Development Studies MK Mujeri, senior economistat the World Bank Zahid Hossain, executive director of PRI Ahsan H Mansur and managing partner of AT Capital Ifty Islam.
Jeffery J. Smith runs the Forum on Geonomics.
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