11 Shining Lights in US Media on Real Revenue Reform
|December 15, 2013||Posted by Staff under Uncategorized|
These eight 2013 excerpts are from: (1) and (2) Pennsylvania’s Reading Eagle, Spt 25 on city data and Oct 9 on consultants, both by Don Spatz; (3) New York’s capitol city, Albany’s Times-Union, Oct 14 on the Green Party by Bryan Fitzgerald; (4) On the Commons, Oct 17 on shaping cities by Mason Gaffney & Rich Nymoen; (5) Bank of International Settlements Working Paper No 433, November on non-interest rate policies by Kenneth N Kuttner & Ilhyock Shim; (6) Truthout, Dec 10 on unearned income by Karl Fitzgerald; (7) Sacramento Bee, Dec 13 on property taxes by Peter Schrag; and (8) New Hampshire’s Concord Monitor, Dec 15, on MONOPOLY by Grant Bosse.
Earlier we excerpted three other excellent articles: “My five-point plan to fix all the economic problems in America” in Slate, Oct 23; “Land Value Tax: An Alternative to the Property Tax” in Eye on Housing, Nov 18, and “End the 1 percent’s free ride: Taxing land would solve America’s biggest problems” in Salon, Nov 22.
What has Land Tax done For Others?
Detailed data for how the proposed land-value tax will affect every Reading property now is available on the city website, and property owners are checking whether they’ll pay more or less compared with existing property taxes.
The administration says the land-value tax promotes economic development and the new jobs that come with it; it discourages owners from sitting on a vacant lot. Pittsburgh has been using the land-value tax since 1913.
Allentown has it. So do more than a dozen cities such as Coatesville, Harrisburg, Lock Haven, Aliquippa, McKeesport, and Scranton.
Consultants Give Qualified Endorsement to Land-Value Tax
The outside consultants who coordinate the city’s Act 47 recovery moves have given what Mayor Vaughn D. Spencer calls a qualified endorsement for his plan to shift the property tax to a land-value tax over five years.
In an eight-page report, the consultant team led by Philadelphia-based Public Financial Management said: “PFM supports the administration’s proposal to the extent that it can be demonstrated not to have disproportionately negative impacts on Reading’s low-income residents.”
The outside consultants are one of three groups that must support the tax shift in writing before Council President Francis G. Acosta said he’d allow it to come up for a vote.
The other two are the Reading-Berks Association of Realtors and the Greater Reading Chamber of Commerce & Industry.
Both have yet to weigh in.
Green Party Hopeful lays out Fiscal Plan
Green Party Albany mayoral candidate Theresa Portelli announced her economic agenda for the city of Albany. It includes switching to a land value tax to help spur development of Albany’s abandoned building, investment in local worker-owned co-ops, a local income tax, and to curtail Albany’s landfill revenue loss by becoming a zero-waste city.
The Forgotten Idea That Shaped Great US Cities
An historical undercurrent in the campaign for economic justice in the U.S. has been the ideas of economist Henry George and the Single-Tax movement, which wielded considerable influence during the Progressive Era of the early 20th Century.
Put into practice through local property taxes, this idea helped shape the growth of leading cities like New York, Chicago, Milwaukee, Cleveland, San Francisco, Pittsburgh, and Detroit.
The formula for growing and revitalizing cities seems to be the same, whether under a “socialist” mayors like Milwaukee’s Hoan or a colorful populist like Cleveland’s Johnson: supply infrastructure, keep user-rates low, raise land taxes, attend to the details of assessment, and go easy on taxing buildings.
Population growth is not always a goal of civic policy. But it is vital to the interests of labor to have cities vie to attract people by fostering good use of their land. That is, indeed, the main point of Henry Geroge’s thesis in Progress and Poverty.
A healthy economy generates surpluses that belie the Chicago School slogan that “There is no free lunch.” Land rents are the free lunch. Perhaps Connecticut’s move this year indicates that this time-proven wisdom is beginning to spread once again.
Can Non-interest Rate Policies Stabilise Housing Markets?
Among the policies considered, a change in housing-related taxes is the only policy tool with a discernible impact on house price appreciation. The evidence suggests that an increase in housing-related taxes can slow the growth of house prices.
The Mystery of Unearned Income
Unearned income is the cornerstone to the wealth gap and is highlighted by the capital gains one sees in property, where the value of a location can jump $30,000 – $50,000 in one year – more than many people earn. The great tragedy of modern economics is that the concept of unearned income is rarely taught at university. Nor is the advantage of location. But “location, location” remains the number one rule in real estate investment.
Blackstone Capital has bought up swathes of property for $35,000. Council appraisers valued them at $60,000, but the rents charged are akin to a $173,000 property. At $60,000 they should be charging $250 per month, not $720. This extra $470 in rental payments is an unearned income.
Neo-classical economics has kept this story under wraps by removing the analytical tools from the syllabus. This happened not in the 1980s, but in the 1880s. Robber barons were concerned about the rising understanding of how they derived their magic money. Henry George’s Progress and Poverty had spelt out the natural advantages that the owners of the earth had over anyone needing some earth: those trying to run a business or earn a wage.
The barons moved to fund the first American Economics Association (1886).
They paid academia to remove land, from the three factors of production (with labor and capital). Thus came the transition from Classical to Neo-Classical Economics. It was as if we no longer needed a place on the earth to work, play or run a business. The influence of high land prices on consumer spending and small business resilience are expected to be ignored.
Adding to this obfuscation is the poor quality of data in many jurisdictions. The USA’s National Incomes and Products Accounts conflates house and land valuations. This is part of the plan to focus on “housing” bubbles, ignoring the locational value of land. It also amplifies depreciation write-offs.
Australia is one of the few remaining nations with a decent data system. This allowed the quantification of unearned income in the Total Resource Rents of Australia report. This found the economic rents of all monopolies at 23.6% of GDP. This is twenty three times greater than neo-classical economists such as Paul Krugman dismiss it at.
This misinformation demonstrates the mastery of economic deception. It provides the barrier to analysis into companies like Blackstone making so much money “in their sleep” (as John Stuart Mill famously once said).
The quantification of unearned incomes is important because society could decide to do what economists have pointed to for hundreds of years – make monopolists pay for the running of government.
Rather than taxing our hard work, gather up monopoly profits in water trading, cyber squatting, geo-satellite orbits, the electromagnetic spectrum, forestry, gambling, banking licenses, and privatized utilities. Owners of such property do little productive work, but claim enormous, lightly taxed profits.
Consider cyber squatter Michael Kovatch, who had the good fortune to be first to buy the domain name www.iphone.com. He sold to Apple for a reported $1 million.
Are those economic rights valued yearly and taxed for their economic potential? The ability of VeriSign to exercise its monopoly power by increasing domain name registration fees at will is ‘overlooked’ as a cost to society. At present, such insiders have the best of both worlds – privatizing monopoly rights while driving through loopholes in a tax system incapable of tracing tax havens.
The state could lay claim to some 40% of this unearned income and use this to remove damaging payroll or sales taxes.
The “invisible hand”‘ was mentioned just once in Smith’s ‘The Wealth of Nations’, as was the ‘free market’. Monopoly was mentioned 64 times, land, 87, tax, 96, and rent, 102 times. For this reason it is time we looked back to the classical era to focus on the unearned incomes (rents) found in land and monopoly. This natural bounty acts as a source of government income while stabilizing the inequities derived from dominion over the earth.
Our Cockamamie Commercial Property Tax System
Every economist, Lenny Goldberg, who heads the California Tax Reform Association, says, would agree that the best tax is a tax on land value only and, to the extent possible, doesn’t tax new investment.
Your Free-Market Gift Guide to Board Games
Monopoly is the world’s best-selling board game, and I don’t know why. It’s an awful game. It takes too long, it relies almost entirely on luck; the player has almost no real decisions to make. As a real estate simulation game, Monopoly is preposterous.
That’s due to its origin as a protest against greedy landlords. In 1904, Elizabeth Magie of Brentwood, Md., received a patent for The Landlord’s Game. Magie was heavily influenced by the writing of Henry George.
George advocated that all government revenue come from a tax on the value of unimproved land, arguing it was the least intrusive tax possible. Under a Georgian tax code, you’d pay local, county, state, and federal property taxes, not on the value of your house, but on the land itself. If you built a shack or a skyscraper, your tax wouldn’t change, so the tax would not discourage investment and improvement. Of course, the value of your land would itself increase based on how much improvement was going on around you.
Ed. Notes: So revenue reform does get some press coverage, tho’ it could use quite a bit more. Even these fine articles had some holes.
- The Reading articles noted the need to consider the poor; a dividend paid to residents from the recovered rents could easily handle that.
- The Green candidate called for a tax on income but that only drives residents away and lowers land values, which she proposed to use as the city’s tax base.
- The old cities authors recalled a popular movement of a bygone era; perhaps what’s needed is a diagnosis which would reveal how a reform could spur a popular movement today.
- The bankers’ economists used the usual stilted jargon; were they too cowed to come out and say “property tax” or “land tax”?
- The unearned income article (in Truthout, where I had a half dozen articles) connected a lot of dots for me. But why not for the mass of readers?
- The California article addressed commercial property for political reasons, leaving out residential, but shifting the property tax is good for both.
- The Monopoly article did a nice job of correcting the urban myth on the game’s origins.
We’ll probably have to see many more such articles on the tax/subsidy system before we see a well informed movement demanding fundamental reform. Good press coverage, yes, but what else will make sharing Earth’s worth popular?