Wealth and Want
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Fred Foldvary

Look for many more of Fred's writings at progress.org:

The Ultimate Tax Reform: Public Revenue from Land Rent

The U.S. tax system is widely perceived as too complex, too intrusive, and too demanding of workers’ paychecks. Taxes today claim a greater share of the average family’s budget than food, clothing, housing, and transportation combined.1 In 2005, the average American had to work 107 days just to pay taxes, compared to 44 days in 1930.2

Tax reform proposals, not surprisingly, are popular among voters and the politicians who represent them. President George W. Bush created an advisory panel on tax reform. Some economists and institutes have proposed reforms to flatten and simplify the income tax, or to replace it entirely with a national sales or consumption tax or value-added tax.

These would be an improvement, but if we seek to reform taxes, we should consider all the possibilities and choose, as Milton Friedman puts it, the “least bad” tax.

Even a relatively flat income tax imposes what economists call a “deadweight loss” or “excess burden” on society. Taxes on productive activity increase the price of labor or goods beyond economic costs, and so reduce the quantity provided. This reduction in production, income, and investment is a misallocation of resources. Resources are wasted because they do not go to where they are most wanted. We can reduce this excess burden by reducing taxes, but changing the type of tax can also reduce this deadweight loss. Economists recognize that if we tap for public revenue a resource whose quantity is fixed, the excess burden disappears. The tax does not reduce the supply and does not increase prices.

This might seem too good to be true, but in fact, such a resource exists everywhere and is indispensable for human action. That resource is land. The supply is fixed, immobile, and inherently visible. If land value is taxed, the land will not flee, shrink, or hide. A tax on land value has no deadweight loss. If the purpose of tax reform is to reduce the extra costs imposed on the economy, a tax on land value does this far better than any tax on income or goods.

If you currently pay property taxes on a home or business, you may be shaking your head at this point. You are not eager to read about a proposal that would make your taxes even more onerous. But the proposal here is not to increase taxes but to shift and reduce taxation. Unless you own a valuable vacant lot, the proposal presented below would most likely reduce your total tax bill, since if fully implemented it abolishes taxes on your earnings and spending, and it also eliminates the portion of real property taxes that falls on buildings and other improvements.

The tax reform presented here is not new. It has been working to some degree in many cities and countries around the world. The idea probably obtained its greatest popularity in the U.S. in the late 1800s, when the economist Henry George analyzed taxing land value and untaxing labor and capital in his book, Progress and Poverty.

Many economists have since then expanded on George’s writing, examining both the theory and the evidence. There is even a “Henry George Theorem,” which proves that in a community with optimal population, the land rent equals the value of the community’s public goods. Modern economics thus affirms George’s theory in a more comprehensive and more rigorous form, although the empirical question of how much revenue could be obtained from rent would benefit from more research.

An advance on George made by Spencer Heath, Spencer MacCallum, myself, and others has been to apply the economic concept of rent-based public revenue to private communities, showing that proprietary communities such as hotels, as well as associations such as condominiums, in effect use site rentals for their revenue, with the implication that most government programs could be shifted to private communities, where the rentals would be collected by contract. Examining this application would take us away from the focus of tax reform and the analysis of land rent for government revenue, but it is useful to point out that economic actors in a competitive market use rentals to pay for public goods because that is most efficient.

The use of land value or land rent for public revenue thus has proponents today, but their voices have not been widely heard in the debate over tax reform, and there are also opponents. The purpose of this report is to give greater voice to land value taxation and to better inform those interested in tax reform about this alternative. We can best judge among options when we consider the whole range of possibilities. ... read the whole proposal

The Rent, the Whole Rent, and Nothing but the Rent

Rent is the highest bid that a normal tenant would pay for the use of land. Economists have divided the resources that go into production into land, labor, and capital goods. The wealth that is produced is distributed to the owners of these three "factors of production." That portion that goes to landowners is rent. ...

Land includes all natural resources, including
  • the spatial surface of the earth,
  • material resources such as water and minerals,
  • the radio spectrum,
  • the atmosphere used for travel or as a dump,
  • all wildlife, and
  • the genetic information in living beings.
A tenant's payment for a site has two components.
  • The pure land rent is the natural rent, the payment for the resource as provided by nature.
  • The second component is a rental for the advantages of a site due to the civic works. This is the infrastructure such as streets, parks, utilities, security, schools, and the legal system which makes real estate much more useful. This rental is really a return to capital goods and labor services rather than land.
Real-estate land rent and rentals arise from the differing productivity of various sites: rent is the differential between the productivity of a site relative to the least productive marginal sites. ...

If we regard human beings as having equal moral worth, then it is morally wrong for some to be masters and others slaves. Each person therefore has proper moral ownership of his labor and wage. Such self-ownership does not extend to land, but people may properly have individual rights to possess land, since this is necessary for the application of labor, and it is efficient for land to be under private title and control.

But it is not necessary for efficiency for the pure land rent to belong to the individual title holder. ...

Rent is therefore the ideal source of general public and community revenue.  ...

The economic rent from minerals, water, and oil would be natural resource royalties that could be paid by bidding for the rights to extract, from payments based on the amount of mining, and the profits from the operations, depending on the circumstances. ...

he philosophy and economics of using rent for community services and sharing the rent equally is called "geoism." The economist Henry George popularized this idea, so it has been called "Georgism" after him, although the concept was proposed a hundred years earlier by the French economists calling themselves the Physiocrats, physiocracy meaning the rule of natural law.
    • Some geoists think that land rent belongs equally to members of local or global communities, so it should be distributed to the residents in equal shares as a "citizens' dividend" to spend on personal or civic services as the individuals choose.
    • Other geoists think that all the natural rent and the rentals due to government civic works and services should be the "single tax" spent primarily on governance and public goods, with any remaining revenues distributed as dividends.
    • Anarchist geoists consider the rent and civic rentals as the best source of community revenue, but only among those who choose to belong to such a community network. ... Read the whole article

Geo-Rent: A Plea to Public Economists
Producer Surplus
Deadweight Loss Analysis
The Henry George Theorem
Public Goods
Club Models
The Tiebout Model
One bids less for land that has tax liabilities and on which profits are lower. Untax the economy, and the economy would produce greater output, which would be capitalized into higher geo-rent.
Geo-rent taxation would reduce sprawl ... 
Dampening cycles...
Tax-base of last resort ...

Abstract: This paper presents an analysis of what is termed “geo-rent,” what the plot-devoid-of-improvements would rent for in an auction. Most of the public finance literature and current thought has disvalued and misunderstood the actual and potential role of land and its rent for public revenue. The qualities of land value that make it a superior source of revenue — having little or no deadweight loss, and capitalizing civic infrastructure and services — are recognized but compartmentalized, ignored in the broader policy discussions. That the “producer surplus” is in reality mostly land rent is little recognized. The “Henry George Theorem” that rent can optimally equal the cost of public goods is not applied to policy issues. Public finance theorists and economists generally presume that land rent is an insignificant portion of national income, whereas studies have estimated that a substantial portion of government revenue could be obtained from geo-rent. The shunting aside and disparagement of public revenue from geo-rent has distorted economic analysis and contributes to iatrogenic economy-hampering fiscal policy. The paper proposes a broader and more integrated public economics which recognizes the fundamental role of land in economies and fully incorporates the analysis of public revenue from land rent.

The Living Wage
There is a proposal in San Francisco, California, to establish a minimum wage of $11 per hour for companies that provide services or lease land from the city. Those who favor this argue that the high cost of living in San Francisco warrants requiring this wage floor so that those workers can afford housing and other living expenses. ...

If many workers in the city were to receive a net increase in wages, this extra money would be a pot of gold for their landlords.
  • Those landlords not under rent control would be able to raise the rents of their low-income tenants, since if the tenant could afford to live there before the raise, he can also afford it if the higher rent brings him back to the same after-rent income.
  • Those tenants in rent-controlled apartments would get a double subsidy, rent and wages, increasing the inequality between those with privileges and those who were not lucky enough to get the government grants.
So the effect of local "living wage" laws are generally higher taxes, higher rents and fewer services for the residents, greater inequality, and not that much improvement in the well-being of the poorest workers and of the city community. The superficial appeal of this programs that only treats the effects of poverty dissolves when subjected to economic analysis.

The fundamental reason why the least-able workers have low wages is that their labor has a low productivity and that a large chunk of their wage is taken away by taxes. The best remedy is to deal with the root cause of the problem: change the school system to raise the educational level of the students, and stop taxing wages when earned or spent. Shift the tax base from wages to land rent. These reforms would raise the pure market wages of the least able workers. Then employers would willingly pay the higher wages because the workers are worth it.  Read the whole article

Well being and being well off
I see three ways in which one can define "well off."
First, one is better or worse off relative to the distribution of wealth or income in a particular society. ...
Secondly, being well off can be thought of as relative to the typical person in the economy. ...
Third, one can define "well off" in absolute terms. ...

Being absolutely well off means,

  • first, that one is able to rise substantially above subsistence through peaceful and honest means, whether from one's labor, from one's rightful share of natural and contractual benefits, or from gifts.
  • Secondly, to be absolutely well off requires complete liberty, so that the only legal restriction is the prohibition of coercive harm to others. Liberty includes security against attack, either by government or by private persons, since one is not really free if one is under substantial threats of death and theft against which one is helpless.

With liberty, one is free to establish whatever relationships one wishes, so long as others are also willing. With liberty and the ability to obtain wealth, one can obtain assurance of future wealth both because one is able to earn it and also because one is able to store wealth and insure oneself against risk.

My Dictionary of Free-Market Economics defines "well-being" as "The amount and degree to which individuals in an economy are able to pursue and attain their ends." The only requirement for absolute well being, for someone who is mentally and physically able to produce wealth, is liberty. With liberty, one can obtain wealth, friends, and future security, express oneself as one pleases, and enjoy life in accord with one's values and lifestyle preference.

Being absolutely well off does not involve any particular level of wealth beyond subsistence, since this depends on personal preference. An artist may prefer to live at subsistence and devote her time to art, and that person is absolutely well off because she is pursuing happiness in her own way. As with relative well being, one can be well off in the absolute sense without being happy, as for example a person who has much wealth but has lost love or has a serious illness.

What is required for there to be complete liberty? There must be a basic law such that any act that does not invade the domain of others is not prohibited or taxed. In liberty, there are only prohibitions if there are victims who are coercively harmed, and there is restitution for damages to others. In liberty, people have equal rights and no special legal privileges. In a free society, nobody starves, because one is able to save for the future, because on obtains one's equal share of natural and civic benefits, and because the sympathy of society will not let people starve.

The economic policy of liberty has four rules:

    1. To the creator belongs the creation.
    2. The profit of nature's creation belongs equally to all.
    3. The benefit of what is created by government belongs to all the people in its jurisdiction.
    4. When the initial distribution is just, the outcomes of free exchange are just and should not be hampered.  Read the whole article
The Science of Economics -- a textbook, free, online
Chapter 01: ... The Foundations of Economic Theory
Chapter 02: ... Labor and its Wages
Chapter 03: ... Land and its Rent
Chapter 04: ... Capital Goods
Chapter 05: ... Time and Interest
Chapter 06: ... Consumption and Demand
Chapter 07: ... Production and Profit
Chapter 08: ... Industrial Organization
Chapter 09: ... Social Problems
Chapter 10: ... The Pure Market Economy
Chapter 11: ... Money, Inflation, and Banking
Chapter 12: ... The Business Cycle
Chapter 13: ... Environmental Economics
Chapter 14: ... Economic Growth, Development, and Population
Chapter 15: ... Governance and Public Choice
Chapter 16: ... Public Goods and Public Finance
Chapter 17: ... The National Economy
Chapter 18: ... International Trade
Chapter 19: ... History and Schools of Economic Thought
Chapter 20: ... The Law of Human Progress

Underprivileged or Rights-Deprived?
Poor folk are often labeled "underprivileged" and richer folk are called "privileged." For example, there is a book titled "One Nation, Underprivileged: Why American Poverty Affects Us All." But "privileged" and "underprivileged" are confused and misleading expressions. If you think the poor are "underprivileged," then you don't really understand poverty.

What is a "privilege?" The term originally meant "private law." A privilege is a special advantage or prerogative or immunity or benefit given only to some people only because they have power or are favored by those with power. If everyone is entitled to something, like freedom of expression, or if everyone may obtain an item such as a passport with the same rules applying to all, then it is not a privilege but a right.

Whether a rich person is "privileged" depends on how he got the money.  ...

So if a person is poor, it is not because he is lacking in special protections, subsidies, and other privileges. A person is usually poor because he has been deprived of the natural right to work. Governments world-wide impose barriers between labor and productive resources, keeping some workers deprived of labor and others who do work deprived of their earnings from labor.

Taxes on wages create a wedge between the cost of labor to employers and the take-home pay of the worker. More costly labor results in less employment. Taxes on the income from capital goods and on the sale of goods has the same effect. There are unemployment taxes, disability taxes, and payroll taxes that increase the tax wedge. On top of that, there are minimum-wage laws that prevent the least productive workers from getting hired. There are permits, zoning, and other rules and costs that also prevent some workers from becoming self-employed.

Deprived of the full natural right to peaceful enterprise and labor, and the natural right to fully keep one's earnings, the poor have little or no income, and depend on charity and governmental assistance. To call them "underprivileged" is a lie. The rights-deprived poor do not need privileges. They just need government to stop interfering with their right to work and save!

The biggest privilege world-wide is subsidies to landowners.  ...

There has been confusion about what is a right and what is a privilege. ...

Some consider a patent a privilege, but it too is a right. ...

Some also consider a corporation to be a privilege, since the firm has a charter from a government.  ...

Real privileges are favors arbitrarily given to some groups and not others.  ...

The really underprivileged folks are all consumers, taxpayers and those who are restricted from peaceful and honest practices or have to pay extra to the government while others are unrestricted and non-taxed. These people lack privileges which others have. The proper remedy is not to expand privileges, but to eliminate all governmental privileges. That is why libertarians and geoists alike have the motto: "Equal rights for all; privileges for none!" Read the whole article



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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper