Favors for a Group or Dividends for All?
To date, government has endowed landowners with very lucrative favors. What if we extended such largesse to everyone?
November 19, 2015
Jeffery J. Smith

If you own land, the good news is government passes into law the policies that favor and enrich landowners. The bad news is, when getting something for nothing, most people must eventually pay the price. This official bias-that-backfires includes spending choices, the tax breaks, and Supreme Court rulings.

Build It & We Will Gain

Projects like the Eire Canal vastly shortened shipping times. That vastly pumped up land values, both along the canals and railroads and in the regions made more quickly accessible. High land values are wonderful, except … government did not recover them to pay for the new infrastructure. Instead, it taxed people’s enterprise. Put that in the minus column.

Politicians and their friends decided where to put new county seats, jails, roads, railroads, land-grant universities, military bases, etc. All that building brought in people and their demand for land swelled location values. Public investment, private gain.

Nowadays, there may be less backroom dealing (or not) in siting, say, a new community college. But economic laws are eternal. As long as there is demand for the new facility, the nearby landowners benefit—as long as society forgets that to own is also to owe.

The Role of the Supreme Court

Historically, the landed and the government were the same people. In the US, Washington, Jefferson, Franklin, et al, were heavily invested in land.

The second constitution (in force today) abolished the land tax in the first US constitution, the Articles of Confederation. The first Chief Justice of the US Supreme Court, John Jay, said, “Those who own the country ought to govern it.”

The Yazoo Company, a syndicate of bankers, lawyers, politicians, land commissioners, and congressmen, in 1785 sold land reserved for Indians, sold land without clear title, and sold the same land to different people. The Supreme Court ruled that those contracts based on fraud were valid.

The Rule of the Railroads

Railroads—another partnership of private investors and public officials—were the big bad corporation of the day. Abe Lincoln was a railroad lawyer. So was the Supreme Court clerk who made corporations into persons merely by penning that notion onto a court ruling after the session had been adjourned.

  • Railroads got hundreds of millions of acres of public land, land they were supposed to sell to finance building the railroad. But they did not live up to their part of the bargain. The Supreme Court ruled they did not have to.
  • Although taking land from government, railroads declined to take title, keeping it off local tax rolls. One state disputed the arrangement before the Supreme Court. The justices ruled the railroad land tax-exempt.

We think of railroads as transporters, but they get more money from leasing land than from shipping freight, while they and their timber company spinoffs are the biggest landowners on the West Coast.

Recent Favors for the Landed

During the Civil War between the North and South—triggered in part by tariffs which sheltered Northern manufacturers at the expense of Southern growers (and consumers everywhere)—the US levied a tax on land and another on income; war trumps all. Post-war, both were repealed for a few decades. In 1894, progressives passed a shift in US taxation from tariffs to income, largely the rent for land held by the top 10%. In 1895, the Supreme Court let Congress's repeal of tariffs stand but not the tax on rents.

More recently, the US Supreme Court ruled that local government owes compensation to owners who sued to build where prohibited—even if the investor bought the land after it’d been zoned for preserving ecosystems or protecting inland sites from storm surge. If that’s fair, do builders owe homeowners who get flooded out? If taxpayers must compensate owners for “takings”, should not owners compensate government for “givings”—the lift in site value following a new zoning, road, sewer, or college?

Not to be outdone by courts, legislatures, too, favor landowners. One biggie is depreciation allowance of real estate (not oil), so the same land gets depreciated over and over, each time it changes hands. Other major favors include mortgage interest deductions, deferments, and exemptions. Renters get nothing of the sort. The modern separation of gentry and ruler is merely superficial.

From Favor-Grantor to Rights-Upholder

Since most taxes exempt more money than they collect, these favors are not exactly “loopholes”. Here’s a better analogy: Taxes are traps set alongside the flow of the economy to snare the output of the little people, and favors are government-posted detours to guide fat fortunes—composed largely of rents—to safety. The real state is still real estate.

Many Americans think deducting interest helps them. It doesn’t. It lets sellers and lenders inflate the price of land. Then fewer people can afford land. The seller’s next home+site will cost more. First-timers can’t become homeowners without the help of parents who’re often too old to be risking a new mortgage.

Rewarding speculators spurs them to hoard land and keep it vacant awaiting a higher price. Vacant lots and under-used parcels cause unemployment, poverty, crime, and ugliness of behavior and the manmade environment and curb supply. As land values rise—sucking more money out of production and consumption—businesses and household cut back. Layoffs, bankruptcies, and foreclosures follow. Every 18 years, people who’d thought tax detours were for them get pinched—or worse—by recession.

The solution? Recall that owners owe. Nobody made land or its value. All of us—as the local populace—generate the latter. To be just, we should share Earth’s worth. Pay land dues, not taxes on our labor or capital. And receive rent shares, not tax breaks or subsidized programs.

Back when railroads were riding roughshod over America, Henry George was popular for promoting his version of geonomics. Even people in high places endorsed him. Supreme Court Justice Louis Brandeis: “I find it very difficult to disagree with the principles of Henry George ... I believe in the taxation of land values only.” That version failed, lacking a dividend to appeal to rational landowners. Now that we know better, we can abolish favoritism for any group and disburse a Citizen’s Dividend to us all.

The real state is still real estate.
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Jeffery J. Smith

JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to Progress.org. A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at Progress.org.