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This 2014 of a U.S. Public Interest Research Group press release, Spt 15, is by Michelle Surka.
Friday’s $550 million settlement between the Federal Housing Finance Agency (FHFA) and HSBC North American Holdings Inc. can be treated as a tax write-off by the bank, shifting $192.5 million onto taxpayers.
Because the FHFA did not specify that the settlement payment cannot be treated as a regular business expense, HSBC will be able to deduct the entirety of the $550 million payment.
The settlement resolves claims of HSBC violating federal and state securities laws in connection with false representation of mortgage-backed securities that contributed to the financial crisis in 2008.
By law, fines and penalties cannot be treated as regular business expenses, and therefore are not tax deductible. However, the FHFA does not designate the settlement payment as a “penalty”, instead calling it merely a “lump sum payment”. Even specified penalties sometimes get deducted as business expenses if corporations deem them to be “compensatory” or “restitutive” rather than punitive.
The FHFA signed a similar settlement with Goldman Sachs last month, granting Sachs a similar tax windfall of $420 million.
Ed. Notes: “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs” is another US PIRG booklet. They also created a fact sheet on Wall Street settlement tax deductions. The info reinforces the fact that government is not the servant of the people but the servant of some people — the very rich who get that way by capturing our payments for land and resources, revenue streams that ought to flow into everyone’s pockets.
Big picture, those tax write-offs would not be a problem if those corporate taxes did not exist. What would we replace those taxes with? With charges up front. We’d charge full market value for their corporate charters, their banking charters which let them issue new money, their patents and copyrights, their monopoly franchises granted to utilities, their licenses for exclusive use of the EM spectrum, their permits to emit pollutants, their leases for extracting resources, their titles to the most prime locations in every city, etc.
All those little pieces of paper — from charters to titles — are worth trillions each year, vastly much more than what corporate taxes raise … enough to fund a welcome dividend to citizens.
These three 2014 excerpts are from: (1) Australia’s MacroBusiness, Spt 23, by Leith van Onselen; (2) Australia’s Herald Sun, Spt 10, by Nathan Mawby, and (3) the US state of Virginia’s RVA, Spt 17, by Aaron Williams.
IMF Shows Australia How to Tax For Growth
The International Monetary Fund (IMF) provided a useful blueprint for tax reform to the G20 finance ministers and central bankers meeting in Cairns, which hopefully should assist the Abbott Government in framing its upcoming tax reform white paper. Central to the IMF’s reform blueprint is shifting tax bases away from less efficient sources, such as personal income and company taxes, to more efficient sources, such as consumption, resources and land/property: The focus of growth-friendly tax policies depends on the tax structure and taxation levels of a country.
Land Not Houses Should be Taxed to Improve Affordability
Australia’s Senate Inquiry into Affordable Housing was given a proposal at its public hearing by research group Prosper Australia. David Collyer, Prosper Australia policy director, said land tax could improve affordability and replace stamp duty.
Why tax productive behavior when taxing humanity’s land has so many benefits?
Favor taxing land instead of improvements for real property taxes in Richmond.
Virginia has authorized municipalities to use two-rate property taxes, but legislating and executing significant tax changes is difficult.
In 2007, Matthew Freeman wrote a great post on his blog Urban Richmond called “Good Idea #2: Tax land, not buildings.”
Taxes increase the cost of productive behavior. This is not true of the land value tax [no one produces land].
By taxing improvements, the government is encouraging land speculation while creating disincentives to development. By taxing land at a higher rate and not taxing improvements, the city could generate identical revenue while encouraging owners holding on to property for speculative reasons or for parking lots to improve or sell. This shift decreases urban sprawl.
It’s surprising how little is known about land value taxes despite incessant calls for tax reform and code simplification from both sides of the aisle at all levels of government.
Ed. Notes: Even though the IMF fudges a bit by bundling land and property, at least a powerful player gave voice to sanity. Does this mean they have reached a point of desperation where they’ll tell the truth, albeit veiled? Does it mean governments will have to take this rational reform seriously?
People do keep calling for such tax reform. It’s a good one. It makes much more sense to pay for land to your community than to a seller or speculator or lender. Yet most people don’t know or don’t support this constructive policy.
What might make these land taxes or land dues or land use fees popular would be to return the revenue as equitable dividends to residents. Aspen CO and Singapore do something along those lines. And Alaska passed a tax on oil and British Columbia a tax on carbon by including a dividend in the legislation. Could the strategy work for land?
This 2014 excerpt of DeSmogBlog, Spt 4, is by Sharon Kelly.
While shale wells extract oil, natural gas also rises from the wells alongside that oil. That gas could be sold, but it is harder to transport from the well to customers than oil. Oil can be shipped via truck, rail or pipe, but the only practical way to ship gas is by pipeline, and new pipelines are expensive, often costing more to construct than the gas itself can be sold for.
So oil drillers burn the gas from their wells off, a process known in the industry as “flaring.” At times, the gas is simply released unburned directly to the atmosphere – a practice labeled “venting” by the industry.
Owners who lease their land to oil companies have filed class action suits to recoup the millions of dollars lost due to flaring. Some of the emissions from flared wells are toxic or carcinogenic. Natural gas is made primarily of methane, and when it burns, it produces more than half as much CO2 as burning coal.
Satellite images of the largely rural North Dakota at night are dotted with what appear to be major metropolises but are instead the flares burning round-the-clock in the Bakken shale drilling patch.
Texas law forbids drillers to flare past 10 days without a permit – but out of the twenty wells that had flared the most gas in the state, 7 had never obtained required permits. State law calls for fines of up to $10,000 a day for flaring violations, but regulators have issued a total of less than $132,000 in fines despite over 150 “possible flaring or venting violations” found by state inspectors.
Texas operates just seven air monitoring stations in the shale region. It can take regulators up to 10 days to arrive to take samples when citizens complain about potentially hazardous fumes.
Texas’s environmental agency, the Railroad Commission, is run by a 3-member panel of elected officials. The three Railroad Commissioners have raised $11 million from campaign donors since 2010. At least half that money came from employees, lobbyists and lawyers connected to the oil and gas industry.
The Railroad Commission is statutorily required ‘to prevent waste of Texas’s natural resources’. The Railroad Commission is breaking the law by allowing drillers to waste natural gas by flaring it off rather than capturing it.
Even though the Texas wells collectively pollute more than multiple oil refineries, the flaring escapes federal oversight.
More than 1 million Texans live near the Eagle Ford shale site, some of whom say they have suffered a litany of health effects that they suspect are tied to flaring.
“We went from nice, easy country living to living in a Petri dish,” Mike Cerny, who lives within a mile of 17 oil wells, told the Center for Public Integrity. “This crap is killing me and my family.”
Ed. Notes: If drillers were not allowed to pollute, I bet somebody could come up with a cost-effective way to store and transport natural gas, perhaps liquify it first. It would not surprise me if somebody has already worked out a method but gets stonewalled as often happens when dealing with big business (the theme of the movie, “Flash of Genius”, a true story).
That said, we could get over burning either gas or oil and move on to not burning anything but rather convert sunlight and natural motion like wind and waves and many other natural sources (even soil organisms!) to electricity, good for both heating and lighting buildings. Let’s leave our poor atmosphere alone!
But to bring about such progress, we really do need geonomics and need it now.
This 2014 excerpt of Thailand’s The Nation, Spt 13, is by Kris Bhromsuthi.
The new government of Thailand plans to introduce new taxes before the beginning of the new fiscal year, which starts next month.
Prime Minister General Prayuth Chan-ocha said, “Tax collection in this new fiscal year will be broadened to boost state revenue and promote fairness. This will include inheritance and land taxes. This would have a limited impact on low-income earners, while tax benefits that favour the rich will be eliminated.”
Prayuth, who also heads the National Council for Peace and Order (NCPO), also noted that only some 20 million of Thailand’s 68 million people paid taxes.
“It’s no use having grand-sounding policies unless you put them into action,” Prayuth said.
The National Legislative Assembly (NLA) members praised Prayuth’s policies, and other than offering a couple of proposals, they came up with no points that need to be debated by Cabinet. Most NLA members who stood up to make remarks were former bureaucrats, academics, businessmen, and ex-senators. Military officers, meanwhile, remained quiet.
The air of fierce exchanges, the raising of hands in protest and the generally tense atmosphere that usually marks debates in the Thai parliament were conspicuously missing yesterday.
Politicians have voiced concern on whether the NLA, which was handpicked by the NCPO, could effectively perform the task of policy regulation by engaging in critical debate.
Ed. Notes: If the new tax law passes, and if the land rent does get collected, Thailand would become the next Asian Tiger — all of which taxed land to some degree — and soon the first geonomic capitol of the world!
At the same time that Thailand recovers all its socially-generated value of locations, it should also delete its taxes on earnings, sales, and buildings. That’s not only fair to everyone who must now pay land taxes or land dues. It is also good economics, clearing the way for much more commerce.
Then society will prosper more than any other ever has throughout history. With its surplus, it should pay its citizens a dividend, as does Singapore. But that city state — since it still levies some counter-productive taxes — and all the other Tigers will seem like weak sisters compared to successful Thailand!
This 2014 excerpt of the Wall Street Journal, Spt 12, is by Peter Thiel, co-founder of PayPal and Palantir and who made the first outside investment in Facebook.
Capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition, all profits get competed away.
Google brought in $50 billion in 2012 versus $160 billion for the airlines, but it kept 21% of those revenues as profits —- more than 100 times the airline industry’s profit margin that year. Google makes so much money that it is now worth three times more than every U.S. airline combined. The airlines compete with each other, but Google stands alone.
As of May 2014, it owns about 68% of the search market. Its closest competitors, Microsoft and Yahoo!, YHOO +0.38% have about 19% and 10%, respectively. The word “google” is now an official entry in the Oxford English Dictionary —- as a verb.
If you run a restaurant and offer affordable food with low margins, you can probably pay employees only minimum wage. But a monopoly like Google has wider latitude to care about its workers, its products, and its impact on the wider world. Google’s motto —- “Don’t be evil” —- is in part a branding ploy, but it is also characteristic of a business successful enough to take ethics seriously.
Do outsize profits come at the expense of the rest of society? Actually, yes; monopolies deserve their bad reputation. In a static field, a monopolist is just a rent collector. If you corner the market for something, you can jack up the price; others will have no choice but to buy from you.
But in a dynamic field where people invent new and better things, creative monopolists add entirely new categories of abundance to the world and shrink old monopolists.
With Apple’s iOS at the forefront, the rise of mobile computing has dramatically reduced Microsoft’s decadeslong operating system dominance.
Before that, IBM’s IBM +0.60% hardware monopoly of the 1960s and ’70s was overtaken by Microsoft’s software monopoly.
AT&T T +0.75% had a monopoly on telephone service for most of the 20th century, but now anyone can get a cheap cellphone plan from any number of providers.
Monopoly profits provide a powerful incentive to innovate.
Ed. Notes: Monopoly profits might drive some innovators but not all. Sufficient profit is sufficient motive for many. Many are driven by the need to see their idea be born and carve a niche in reality.
And while there might not be competition between firms, there is still competition within firms. Employees do compete to get their proposals accepted, to rise up the corporate ladder. So competition is for winners, too.
While some monopolies and dominant companies do some good after they’ve creamed the competition — just as some rich families and individuals do — many don’t.
Car companies colluded to destroy trolleys and to shelve fuel-efficient devices, such as Honda’s CVC.
Wall Street colluded to destroy smaller banks and now charges fees for every simple thing.
Oil companies stymie anti-pollution efforts.
Utilities push nuclear power, not de-centralized power sources like solar which would cost little and put the utilities out of business.
Even in the high tech field, the giants like Intel patent so many ideas (for just peanuts) that they box out fresh thinkers.
Thiel’s former PayPal partner, Elon Musk, demands and wins subsidies from politicians, costing the public both tax dollars and a level playing field for other new entrepreneurs.
Would giantism even be an issue if businesses received no such largesse? That is, enjoyed no subsidy nor rules that hamper their competitors. And if they had to pay for what they take, not what they make? That is, pay a tax or fee or fine for imposing harm or costs on others, but keep all income fairly earned without being taxed. Then we would have progress without giantism and the myth of business superheroes would be laid to rest.
This 2014 excerpt of Max Keiser’s Financial War Reports, Spt 9, by Ellen Brown.
The Federal Reserve and its regulatory cohorts claim they’ve found a means of avoiding another massive bailout of Wall Street in a crisis.
The Fed, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, have eliminated municipal bonds from the list of high-quality liquid assets (HQLA) to accept as collateral. Now banks that are the largest holders of muni bonds are liable to start dumping them in favor of Treasuries and corporate bonds, despite the lower credit ratings of such bonds.
If demand for munis drops, cities would have to raise their interest rates to attract buyers. Sky-high interest rates are the fast track to insolvency. Localities might sell their assets at fire sale prices — as bankrupt Detroit is doing — in a futile attempt to keep up with the bills.
If demand for corporate bonds rise, corporations could lower the interest rates they pay to bondholders. Corporations would gain at governments’ expense. The rule change would further shift power and finances from the public sector to the private sector.
Globally, IMF regulators have discussed establishing an international bankruptcy court that could strip a country such as Argentina of its assets, including prime sections of real estate, to pay off the nation’s creditors.
Ed. Notes: Since the pension funds of unions and government workers and the savings of leftists in general are so huge, why wouldn’t they step up to the plate and buy all new munis coming out to spare localities from having to pay higher interest rates?
And if the bond is for some project that is truly needed — e.g., a new train tunnel — that project will raise nearby land values plenty high. If government recovers those values, it can pay off the bond, no problem. Such surety will make the bond attractive to buyers and easy to sell by localities.
If the bonds are for unneeded projects or wasteful government, localities should not be selling them in the first place.
While munis lose one advantage — acting as collateral — they retain another — their interest is tax-exempt for recipients. Interest from corporate bonds is taxed normally. That’s not the only way taxes tilt the playing field.
If not for tax law, corporations would not offer so many bonds for sale. Currently, governments tax corporate earnings and dividends but exempt corporate debt. So to expand, corporations sell bonds rather than reinvest their earnings. Government should close its loopholes. Or better yet, just get rid of all its counterproductive taxes.
Then how would government fund itself? Fees for certain services like driver’s licenses. Dues for citizenship. Auctions of permits to emit pollutants. Fines upon violators of rules to protect worker, consumer, and nature. Etc.
While these sources of revenue would not fund the size of government today, is such giantism necessary? Not at all, not if we also share the economic values of land, resources, the EM spectrum, etc, a la Alaska’s oil dividend. Then, getting this extra income, we won’t have to rely on top-heavy government “services” … and can say bye-bye to excess government and unneeded munis.
This 2014 excerpt of PostMag, Spt 7, is by Larred Macfarlane. This article was first published in Scotland 44: Ideas for a New Nation.
People often joke that economists were created to make weather forecasters look good. Eighty four years, John Maynard Keynes in his The Economic Possibilities of Our Grandchildren predicted a life devoted to recreation and leisure. Didn’t happen, but in one regard Keynes was correct: the enormous productivity gains since the end of World War II have generated immense economic growth and caused an explosion in material wealth.
So why isn’t everyone enjoying the leisure economy that Keynes promised?
“Predistribution” is the idea that government should prevent gross inequalities from emerging in the first place, rather than establishing government bureaucracies to try and ameliorate inequalities once they have developed.
Rather than being based on the unfettered exploitation of people and environment, a “predistributive” economy would also be based on the careful and sustainable utilisation of our resources – both natural and human. Scotland is blessed with a wealth of natural resources; land, wind, tide, wave, water, forestry, fish and more. The stewardship of these natural resources matters immensely in shaping the social and environmental outcomes in society.
Being a free gift of nature, the economic value of these natural resources has nothing to do with anyone’s work, wisdom or labour. Accordingly, it is only logical that our natural commons should be utilised for public benefit, either through public ownership or as a source of public revenue. Recognising that the natural wealth of the land should be shared among the populace is not a new idea. The Anglo-American revolutionary Thomas Paine called this idea ‘Agrarian Justice’ – that was in 1797.
Our most precious natural resource is the one that we take most for granted: the land beneath our feet. By rebalancing the sources of public revenue from productive labour to unearned wealth accruing from landownership, the value of land can be utilised to benefit society as a whole.
In the words of Welsh novelist Raymond Williams: “to be truly radical is to make hope possible rather than despair convincing”. In the words of American polymath Buckminster Fuller, “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
Ed. Notes: You do know that while we say “home price” what really has become more costly to buyers, profitable to sellers, is not the building but the land, right? And you can clearly see that the increase is not due to the structure but to the construction of some public infrastructure, right? And that this increase should not be a giving to landowners but be the source of revenue to build and then repair the lightrail line, right?
Indeed, two big name economists — Joe Stiglitz and Bill Vickrey — both calculated that there has never been a desirable public works project that did not pay for itself by pumping up nearby location values. The problem is, governments don’t bother to recover these socially-generated values, which should be our common wealth. The bigger problem is that landowners want to keep for themselves this manna from heaven.
But look what we could do if we did recover natural values. We could share them. Enjoying our “rent” dividends, we could safely forget about wasteful subsidized programs. And the taxes that fund them. It’s called geonomics and it has always worked.
This 2014 excerpt of Thom’s Blog, Sep 3, is by Thom Hartmann.
The Texas Parks and Wildlife Foundation recently purchased twenty-seven square miles of wetlands along the Texas coastline using about $38 million dollars from BP’s fines for the 2010 BP Deepwater Horizon catastrophe.
That purchase will protect the salt marshes, oak forests, and pristine wetlands of Texas’s coastline, and it will provide a buffer for storm surge and sea level rise that pose a threat to that state. The Wildlife Foundation had been trying to purchase the land for over three decades, but was unable to raise the funding until BP was forced to pay.
It was only the massive scale of the BP spill that prompted large fines and settlements.
By forcing Big Oil to pay for their disasters, we raise the cost of business for the fossil fuel industry, and force them to do more to prevent another disaster.
But we shouldn’t wait until the next disaster to make Big Oil pay up. Let’s make them pay in advance for the destruction they cause. It’s so important to prevent corporations from privatizing gains and socializing costs.
Ed. Notes: Good point that (1) fines are not enough. But not just oil companies but anybody who alters nature for profit should first pay (2) an Ecology Security Deposit (like how we pay deposits before leasing an apartment) and buy (3) Restoration Insurance (like how we buy car insurance before driving on public roads). Further, polluters should buy (4) permits to emit byproducts that can cause harm, just like a promoter must buy a permit to stage a loud concert. These four charges alone would make oil extraction, indeed most industry, not profitable, according to the UN.
Yet most fundamentally, the most powerful charge that society could oblige land users to pay are Land Dues or land taxes. The amount would be the annual rental value of the location. Because market-rate rents tally much more than fines, deposits, premiums, or permits, the Land Dues (or taxes) that collect the rents would have much more impact. The main change is that resource extractors would abandon marginal site, sparing much nature, and concentrate on prime sites, getting more from less.
While recovering the socially-generated values of sites and resources, government could quit levying counterproductive taxes on our earnings, purchases, and buildings. While society has a valid claim to the worth of Earth — something everyone has a right to and its value is something society as a whole generates — it’s hard to craft a moral argument for those taxes that punish our efforts.
Along reforming taking, government could reform spending, and quit paying corporate welfare while instead disbursing a dividend to the citizenry.
To top it all off, we could go back to the days before government limited the liability of businessmen for free or a pittance and instead requrie them to negotiate contracts with suppliers, investors, workers, etc. Then we solve not just our environmental problems and our economic ones at the same time. Called geonomics, it has worked wherever tried.
This 2014 excerpt of the New York Times, Aug 31, is by Felicity Barringeraug.
In a drought as long and severe as California’s current one, excessive withdrawals of groundwater means that land sinks, old wells go dry, and saltwater invades coastal aquifers. Water levels in dozens of wells are at historic lows, making new wells more expensive.
The California Legislature, in its closing hours on Friday, passed new and sweeping groundwater controls that Gov. Jerry Brown is expected to sign, making California the last Southwestern state with to establish groundwater controls. The measures do not eliminate private ownership, but they do establish a framework for managing withdrawals through local agencies.
Not just farmers, but cities like Fresno rely heavily on groundwater supplies. In an average year, 39 percent of the water consumed in California comes from the ground. In areas with little surface water, like the central coast from Carmel to Santa Barbara, groundwater makes up 80 percent of supplies on average.
In the third year of a drought, an estimated 60 percent of the water for agriculture comes from underground.
A few farmers pump to sell high-priced water to others. Farmers in Merced County made a $46 million, four-year deal to sell nearly 100,000 acre-feet — an acre-foot is enough to supply at least two houses for a year, or to cover an acre of land one foot deep — to buyers in the neighboring county. The deal was challenged and has been scaled back.
House prices in the UK are too high. Too high compared to historical averages, too high relative to rents and too high relative to incomes.
Says who? Certainly not estate agents, mortgage lenders or surveyors.
Yet the IMF said the UK house price to income ratio was 30 per cent above its long-term average; only in France, New Zealand, Australia, Canada and Belgium was the discrepancy higher. Relative to rents, the margin was even wider at 40 per cent.
The OECD, the think-tank for developed economies, made a similar point. The European Commission also warned earlier this year of the “macroeconomic imbalances” in the UK economy, many of which are linked to housing.
Engineering a lasting “soft landing” in the housing market – a moderation of price growth, but not an outright crash – is easier said than done.
Reform property taxation
The political cowardice of successive governments means it is levied on values not properly assessed in living memory.
A progressive tax on property values (or land values; in practice most of a property’s value is the land) would have several beneficial effects. It would make the property market work more smoothly and efficiently by removing the distortions caused by stamp duty, it would redistribute from the property rich to the property poor and – if levied at an appropriate rate – it would help dampen excessive price rises.
Over the last 40 years the UK housing market has transferred huge amounts of wealth from the young and poor to the middle-aged and well-off, especially in London. A fairer and more efficient tax, one that would raise as least as much as stamp duty and council tax combined, could begin to reverse that trend.
Jonathan Portes is director of the National Institute of Economic and Social Research
This 2014 excerpt of Web of Debt, Spt 1, by Ellen Brown.
The September/October issue of Foreign Affairs [published by a think tank funded with oil rents by the Rockefellers and which guides US Foreign policy] features an article by Mark Blyth and Eric Lonergan titled “Print Less But Transfer More: Why Central Banks Should Give Money Directly To The People.”
The Fed’s Zero Interest Rate Policy (ZIRP) favors the banks that borrow the money and put it in interest-bearing Federal Reserve accounts or buy foreign debt or speculate with it; and the profits go back to the 1%, who park it offshore to avoid taxes. Worse, any increase in the money supply from increased borrowing increases the overall debt burden and compounding finance costs, which are already a major constraint on economic growth.
All else having failed, it is reduced to trying what money reformers have been advocating for decades — get money into the pockets of the people who actually spend it on goods and services.
The Fed is “independent.” At least, it is independent of government. It marches to the drum of Wall Street. It is basically a dictatorship. The Fed did not ask permission before it advanced $85 billion to buy an 80% equity stake in an insurance company (AIG), or issued over $24 trillion in very-low-interest credit to bail out the banks, or issued trillions of dollars in those glorified “open market operations” called quantitative easing.
It’s probable that they don’t actually have the legal right to do anything like this.
Ed. Notes: While everyone should get money for nothing, not just the rich, should it come out of thin air? Doing it that way ignores the huge surplus that already exists and is being captured by the 1%. What is society’s surplus? It is all our spending for all the nature we use: land, resources, EM spectrums, both directly for those assets and indirectly, embedded in the price of all the goods and services we buy.
It’s trillions of dollars every year and by overlooking it, we allow the theft of our common wealth to continue, to erect an elite that can take away our savings and houses just as well as pay us something freshly printed and minted. Trying to print money rather than confront the theft from our commons strikes me as a bit sneaky and not exactly brave anyway. Yes, there is a free lunch — or at least cheap abundance — and it is not new money but spent money, spent on things not made by labor.
And fundamentally, the scheme misunderstands the purpose of money, which is to make possible an accounting system of our values, reflected in prices, which are constantly inflating while my pay is not. I’d like to know where Ellen shops (she seems to be a very decent person), but in my grocery store food keeps getting less and less affordable. We should no more tamper with honest money than we should constantly change, say, the number of days in the week. That said, people should still be getting an extra income, but it should come from the source that is now enriching only a handful of us, and that is the worth of Earth.
This 2014 excerpt of the Straits Times, Aug 30, is by John Wong.
Many of the government’s anti-corruption and anti-extravagance measures, as official travel, official dinners, and other perks for officials, have reduced domestic consumption. “Witch-hunt” fear in the bureaucracy has lead to inaction of government officials and a political paralysis that has, in turn, stalled the implementation of projects and even resulted in cutbacks on domestic investment, particularly at the local government level. All these have put a rising toll on the economy, which is already slowing down in growth.
Eventually, lower corruption would lower transaction costs and ultimately raise economic efficiency.
It was premier Wen’s huge stimulus package of four trillion yuan (S$813 billion) to shore up economic growth during the global financial crisis in 2008 that really opened the floodgates to massive corruption and rent-seeking activities. Many gigantic infrastructure projects were hastily launched, and many local governments went into uneconomical ventures in collusion with property developers. In some localities, it was an economic “Wild West”.
China’s corruption was mostly in rent-seeking activities involving property development, which did not directly affect industrial production and exports in the real economy.
Current Premier Xi’s crackdown on corrupt officials is by itself an indirect official admission that the party and all its related apparatus had all along been extensively corrupt. Such a revelation only undermines the image of the party and the credibility of the government.
His relentless pursuit of high-level culprits or “tigers” could rock the basic power structure by upsetting its existing factional balance and undermining the unity of the party.
Corruption is politically harmful because it corrodes the whole political structure and its bureaucracy. It is socially harmful because it aggravates inequality of income and wealth.
Governments world-wide are erecting towers of debt so high that they will, a decade from now, come crashing down in the next great financial crisis. The debt problem was featured in a Cato Policy Report of May/June 2014, a review of the book, The Government Debt Iceberg.
The report states that “current generations have been consuming at the expense of future generations.” That is true in a financial sense, but not from an economic perspective. Today’s consumption comes from today’s production. We cannot today consume the future’s output. However, we do today live at the expense of the future in the excessive consumption of natural resources, such as the fish in the sea, and also in spoiling the natural environment. But that is a different topic from the government-debt problem.
The main problem with government debt is that promises are being made to the poor and the elderly, which cannot be kept. The present value of the funds promised to pay for medical care and retirement income are seven times greater than the present value of funds expected from taxation. There are various estimates of these unfunded liabilities, but for the USA they are in the order of $120 trillion dollars, seven times the amount of the official debt of 17 trillion dollars.
Today, the credit of the United States is still good. For the next several years, the USA will be able to borrow funds, but as the explicit debt becomes ever greater, US treasury bonds will no longer be regarded as safe from risk. The debt service will grow as a risk premium is added to the interest rate paid by the Treasury.
In The Government Debt Iceberg, published by the Institute of Economic Affairs, Jagadeesh Gokhale calculates that to close the fiscal gap, an extra nine percent of GDP in tax revenues would have to be levied each year. That would require more than doubling federal payroll taxes if the entitlement funds continue to come from that source. The debts of Europe and Japan are even worse. Gokhale proposes to have governments publish the real economic debt, forward-looking measurements that include all unfunded liabilities, so that the debt is no longer an iceberg, mostly hidden beneath the surface appearance.
There are four possible solutions to the towers of debt. The first and best is rapid growth, so that the ratio of national income to deficits rises. The only possible way to induce high economic growth is with an efficiency tax shift – replace market-hampering taxes with market-enhancing levies on pollution and land value, plus voluntary user fees.
The second alternative to avoid the catastrophic crash of government liabilities is to greatly reduce the obligations. But cutting medical and retirement benefits would create economic hardship and be politically infeasible. Governments will most likely reduce the growth of future liabilities by raising the eligibility ages, reducing the growth of benefits, and increasing co-payments. But that will still leave a large economic debt.
The third alternative is to greatly increase current tax rates, but that option would stifle growth and make workers even more dependent on entitlements. The fourth alternative is high inflation, which would reduce the value of the explicit debt, but if social security and medicare are indexed to inflation, that would not solve the problem of keeping the promises.
The only way to avoid economic catastrophe is to raise the income of workers by eliminating taxes on wages and goods, and using the economic surplus that is land rent to finance government. Workers would then be able to afford to pay for their own expenses. Unfortunately, neither the Cato review nor the IEA book even mention this efficiency tax shift.
Much of the funding for policy institutes derives from the profits of the landed interests, and that influences policy positions. These organizations believe in free markets, but are constrained by their lack of the ability to study the subsidies to land values. So we have to rely on geoist or Georgist organizations and scholars to analyze and publicize the most effective solutions. The world is stuck in poverty and debt, because the landed interests prevent the exposure of their subsidies.
The advocates of geoism or Georgism, the concept, promoted most prominently by Henry George, of equal rights to land rent, thus using land rent for public revenue and personal dividends, are a union of egalitarian advocates for justice, and individualist advocates for liberty. They hold the keys to the resolution of economic woes and political conflicts, but they are but a small remnant of today’s progressive movements. Therefore the most effective solution to the debt will not even be discussed in the major media, and we will, once again as in 2008, be pushed by the currents of the river of deficits, towards an even greater financial waterfall.
This 2014 excerpt of Open Secrets, Aug 28, by Robert Maguire.
Social welfare organizations which claim educating or informing the public as a part of their mission aren’t supposed to have politics as their primary purpose and aren’t required to disclose their donors. Political spending by these groups is reaching new heights: This week, it crested $50 million, a record for this point in an election cycle, and more than seven times beyond the outlays by such groups at this time in the last midterms.
And that’s just the amount that has been reported to the Federal Election Commission, which doesn’t include tens of millions more spent on “issue ads” that aired earlier in the cycle and didn’t have to be reported to the agency.
Lying in the name of “educating voters” isn’t new. Ads by such groups contain glaring mistakes, according to independent fact checkers. Well-funded nonprofits run ads outside the reporting window – often making false or misleading claims about a candidate. Then, months later, they run ads advocating openly for the candidate’s defeat, often recycling the same false or misleading claims.
Based on spending in previous cycles, 2014 dark money is projected to set a new record. If the rate of spending from previous cycles continues, the totals could reach upwards of $730 million or — if the rate seen in the last midterm holds — edge close to $1 billion.
And despite the boom in liberal spending, these groups still don’t compare to their conservative counterparts.
Ed. Notes: Wouldn’t it be great to live in a nation where lying to the public is illegal? If only!
That aside, even if conservatives were not allowed to spend so much, or if liberals were able to spend more, how much difference would that make? Liberals would be able to influence more people but as long as they spout the same message, they will still fail to reach a huge segment of the population. Since the use of money in politics is not shrinking but expanding, liberals might want to rethink their message.
Find the words that no matter how much money is spent resonates with a majority. Just as grammarians have not been able to stop the spread of “like”, conservatives would be unable to stop the acceptance of economic justice if liberals could express it effectively, as well as the last five words of the Pledge Allegiance: “with liberty and justice for all.”
a study of a phenomenon David Ricardo noted going on two centuries ago. When wine grapes rise to $10,000 a ton from the very best land (last year, cabernet sauvignon commanded an average of $4,021 a ton in the Napa Valley), then vineyard prices soar from $18,000 an acre in the 1980′s to $100,000 an acre five years ago and now for a top pedigree up to $300,000 an acre (The New York Times, April 9, via Wyn Achenbaum). Pricey land does not make wine pricey; spendy wine makes land spendy. While vintners make their wine tasty, nature and society in general – not any lone owner – make land desireable. Steve Kerch of CBS’s MarketWatch (April 5) notes that much of what a home sells for on the open market is a reflection of intangible factors such as what school district the house sits in. The price the builder has to pay for the land also tends to be driven by the same intangibles. Because the value of land comes from society, and because one’s use excludes the rest of society, each user owes all others compensation, and is owed compensation by everyone else. Sharing land’s value, instead of taxing one’s efforts, is the policy of geonomics.
the study of the money we spend on the nature we use. When we pay that money to private owners, we reward both speculation and over-extraction. Robert Kiyosaki’s bestseller, Rich Dad’s Prophecy, says, “One of the reasons McDonald’s is such a rich company is not because it sells a lot of burgers but because it owns the land at some of the best intersections in the world. The main reason Kim and I invest in such properties is to own the land at the corner of the intersection. (p 200) My real estate advisor states that the rich either made their money in real estate or hold their money in real estate.” (p 141, via Greg Young) When government recovers the rents for natural advantages for everyone, it can save citizens millions. Ben Sevack, Montreal steel manufacturer, tells us (August 12) that Alberta, by leasing oil & gas fields, recovers enough revenue to be the only province in Canada to get by without a sales tax and to levy a flat provincial income tax. While running for re-election, provincial Premier Ralph Klein proposes to abolish their income tax and promises to eliminate medical insurance premiums and use resource revenue to pay for all medical expense for seniors. After all this planned tax-cutting and greater expense, they still expect a large budget surplus. Even places without oil and gas have high site values in their downtowns, and high values in their utility franchises. Recover the values of locations and privileges, displace the harmful taxes on sales, salaries, and structures, then use the revenue to fund basic government and pay residents a dividend, and you have geonomics in action.
a way to connect the dots. Making the cyber rounds is “The Cavernous Divide” by Scott Klinger, from AlterNet (posted March 21): “As the number of billionaires in the world expands, so does the number of those in poverty.” Duh. The yawning income gap is not news. Nearly every issue of our quarterly digest carries a similar quote. Yet the connection was worked out long ago by one of America’s greatest thinkers, Henry George, who labeled his masterpiece, Progress and Poverty. Techno- and socio-advances always enrich few and impoverish many. Yet progress also pushes up location values – the geonomic insight (is Silicon Valley cheaper now or more expensive?). Instead of taxing income, sales, or buildings, society could collect those values of sites, resources, EM spectrum, and ecosystem services via fees and dues, which would lower the income ceiling, and instead of lavishing corporate welfare, pay out the recovered revenue via dividends, which would jack up the income floor. Dots connected.
what you do when you see economies as part of the ecosystem, following feedback loops and storing up energy. Surplus energy – fat or profit – enables us to produce and reproduce. To recycle society’s surplus, the commonwealth, geonomics would replace taxes with land dues (charged to users of sites and resources, in-cluding the EM spectrum, and extra to polluters), and replace subsidies with rent dividends to citizens (a la Alaska’s oil dividend). Without taxes and subsidies to distort them, prices become precise, reflect accurately our costs and values; then, motivated by no more than the bottom line, both producers and consumers make sustainable choices. While no place uses geonomics in its entirety, some places use parts of it, most notably a shift of the property tax off buildings, onto locations. Shifting the property tax drives efficient use of land, in-fills cities, improves the housing stock, makes homes affordable, engenders jobs and investment opportunities, lowers crime, raises civic participation, etc – overall it makes cities more livable. Geonomics – a way to share the bounty of nature and society – is something we can work for locally, globally, and in between.
a manual. The world did not come without a way for people to prosper, and the planet to heal and stay well; that way is geonomics. Economies are part of the ecosystem. Both generate surpluses and follow self-regulating feedback loops. A cycle like the Law of Supply and Demand is one of the economy’s on/off loops. Our spending for land and resources – things that nobody made and everybody needs – constitutes our society’s surplus. Those profits without production (remember, nobody produced Earth) can become our commonwealth. To share it, we could pay land dues in to the public treasury (wouldn’t oil companies love that?) and get rent dividends back, a la Alaska’s oil dividend. Doing so let’s us axe taxes and jettison subsidies. Taxes and subsidies distort price (the DNA of exchange), violate quid pro quo by benefiting the well-connected more than anyone else, reinforce hierarchy of state over citizen, and are costly to administer (you don’t really need so much bureaucracy, do you?). Conversely, land dues motivate people to not waste sites, resources, and the ecosystem while rent dividends motivate people to not waste themselves. Receiving this income supplement – a Citizens Dividend – people can invest in their favorite technology or outgrow being “economan” and shrink their overbearing workweek in order to enjoy more time with family, friends, community, and nature. Then in all that free time, maybe we could figure out just what we are here for.
a way to have everybody pulling on the same end of the rope. Last summer’s expansive forest fires shed light on growing class resentment in the West. Old log-gers and ranchers rankled at the new urgency to stamp out the blazes that threatened the recent Aspenesque settlers. The newcomers expected working class firemen to make protecting their expensive homes top priority. (Chr Sci Mntr, Spt 7) The tinder for this envy? Rich people moving in bid up the price of land, making it hard to afford by people on the margin. The fault really lies with our system of privatizing land value. If this rising value were collected by land dues and shared by rent dividends – the essence of geonomic policy – who’d complain? The more people move in, the higher the land value, and the fatter the dividend paid to residents. Then people on the margin might go out of their way to invite rich outsiders in.
a way to have everybody pulling on the same end of the rope. Last summer’s expansive forest fires shed light on growing class resentment in the West. Old loggers and ranchers rankled at the new urgency to stamp out the blazes that threatened the recent Aspenesque settlers. The newcomers expected working class firemen to make protecting their expensive homes top priority. (Chr Sci Mntr, Spt 7) The tinder for this envy? Rich people moving in bid up the price of land, making it hard to afford by people on the margin. The fault really lies with our system of privatizing land value. If this rising value were collected by land dues and shared by rent dividends – the essence of geonomic policy – who’d complain? The more people move in, the higher the land value, and the fatter the dividend paid to residents. Then people on the margin might go out of their way to invite rich outsiders in.
the Great Green Tax Shift maxed out”
Economically, taxing pollution and depletion does reduce pollutants and extracts – and thus the tax base; plus such taxes are regressive, requiring a safety net. On the other hand, collecting site rent is progressive and generates a revenue surplus payable as a dividend to residents, which can serve as the safety net.
Environmentally, taxes on waste and extraction do not drive efficient use of land, as does getting site rent. Better settlement patterns do reduce extraction upstream and pollution downstream.
Politically, green fees have less impact if applied locally; local is where grassroots movements have more impact. Yet getting rent usually entails shifting the property tax (or charging user fees), the province of local jurisdictions; both mayors and city voters have been known to adopt a site-value tax.
Ethically, putting into practice “tax bads, not goods” skirts the issue of sharing Mother Earth which collecting rent confronts head on. Since nothing is fixed until it’s fixed right, ultimately, greens must lead humanity into geotopia where we all share the worth of Mother Earth.
shaped by reality. In the 1980′s, the Swedish government doubled its stock transfer tax. Tax receipts, however, rose only 15%, since traders simply fled to London exchanges. Fearing a further exodus, the Swedish government quickly rescinded the tax altogether. (The New York Times, April 20) That willingness to tax anything leads us astray. Pushing us astray is that unwillingness to pay what we owe: rent for land, our common heritage. Assuming land value is up for grabs, we speculate. We cap the property tax on both land and buildings and the rate at which assessments can go up; while real market values rise quicker, assessments can never catch up. Our stewards, the Bureau of Land Management, routinely sell and lease sites below market value, often to insiders, says the Government Accounting Office. Once we grasp that rent is ours to share, we’ll collect it all, rather than let it enrich a few, and quit taxing earnings, which do belong to the individual earner. That shift is geonomic policy.
of interest to Dave Lakhani, President Bold Approach (Mar 8) and Matt Ozga (Jan 29): “I write for the Washington Square News, the student run newspaper out of New York University. Geonomics seems like it has great significance, especially in this area. When was geonomics developed, and by whom?”
About 1982 I began. Two years later, Chilean Dr Manfred Max-Neef offered the term geonomics for Earth-friendly economics. In the mid-80s, a millionaire founded a Geonomics Institute on Middlebury College campus in Vermont re global trade. In the 1990s, CNBC cablecast a show, Geonomics, on world trade as it benefits world traders. My version of geonomics draws heavily from the American Henry George who wrote Progress & Poverty (1879) and won the mayoralty of New York but was denied his victory by Tammany Hall (1886). He in turn got lots from Brits David Ricardo, Adam Smith, and the French physiocrats of the 1700s. My version differs by focusing not on taxation but on the flow of rents for sites, resources, sinks, and government-granted privileges. Forgoing these trillions, we instead tax and subsidize, making waste cheap and sustainability expensive. To quit distorting price, replace taxes with “land dues” and replace subsidies with a Citizens Dividend.
Matt: “This idea of sharing rents sounds, if not explicitly socialist, at least at odds with some capitalist values (only the strong survive & prosper, etc). Is it fair to say that geonomics has some basis in socialist theory?”
A closer descriptor would be Christian. Beyond ethics into praxis, Alaska shares oil rent with residents, and they’re more libertarian than socialist. While individuals provide labor and capital, no one provides land while society generates its value. Rent is not private property but public property. Sharing Rent is predistribution, sharing it before an elite or state has a chance to get and misspend it, like a public REIT (Real Estate Investment Trust) paying dividends to its stakeholders – a perfectly capitalist model. What we should leave untaxed are our sales, salaries, and structures, things we do produce.
I just want to thank everyone who made this day necessary.
The important thing is not to stop questioning.
First they ignore you, then they laugh at you, then they fight you, then you win.
I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend.
One should be able to see that things are hopeless and yet be determined to make them otherwise. This philosophy fitted on to my early adult life, when I saw the improbable, the implausible, often the “impossible,” come true.
F. Scott Fitzgerald
You can observe a lot by just watching.
It is error alone which needs the support of government. Truth can stand by itself.
You cannot simultaneously prevent and prepare for war.