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Cost of Living

With each generation, the cost of living rises. This seems peculiar, given the awesome increases in technology and productivity, the lower costs of many goods which are made overseas, the lower costs of food relative to other items, etc. Yes, even poor people own items that didn't exist 50 years ago, or were available only to the wealthiest among us.

(Interestingly, Henry George spoke to this issue near the beginning of Progress & Poverty, so the same argument has been around for 125 years! He wrote, in a footnote, "It is true that the poorest may now in certain ways enjoy what the richest a century ago could not have commanded, but this does not show improvement of condition so long as the ability to obtain the necessaries of life is not increased. The beggar in a great city may enjoy many things from which the backwoods farmer is debarred, but that does not prove the condition of the city beggar better than that of the independent farmer.")

But young people, particularly in our coastal states and urban areas, can't afford to live in the towns in which they grew up. Nurses and retail sales people and janitors can't afford to buy homes in many parts of the country, and can't afford to rent in many others. Wages are not keeping up with the cost of living. And our official poverty statistics don't begin to measure this.

At the same time, wealth is becoming increasingly concentrated into the top few percent of the population, as is income.

Can this be changed? The thesis of this website is that, yes, it can, if we come to understand that all of the benefits of our technological progress and population growth and public spending go to whomever gets to keep the rent on land, and then recognize that we must collect the rental value of land from those who own land, particularly our urban land.

Shifting our taxes off work and onto land values will help bring down the price of land, making it affordable to those who need it. This will make housing more affordable, allow potential entrepreneurs access to the choice sites, and reduce the profitability of the FIRE sector. Those businesses whose primary purpose is to serve as landlord, however, will not favor this reform. Are they powerful enough to prevent it? They have a lot to lose: not the rent on the buildings — that is legitimately theirs, and wouldn't be taxed — but the locational value, which is rightly our common asset.

What sort of world would you like your grandchildren to live in? If you are in the landlord class, do you think you can provide all of them enough protection from those who are tenants or whose landholdings are of minimal value? What sort of world do you want all of our grandchildren to live in?

Henry George: The Common Sense of Taxation (1881 article)

As to amount of taxation, there is no principle which imposes any arbitrary limit. Heavy taxation is better for any community than light taxation, if the increased revenue be used in doing by public agencies things which could not be done, or could not be as well and economically done, by private agencies. Taxes could be lightened in the city of New York by dispensing with street-lamps and disbanding the police force. But would a reduction in taxation gained in this way be for the benefit of the people of New York and make New York a more desirable place to live in? Or if it should be found that heat and light could be conducted through the streets at public expense and supplied to each house at but a small fraction of the cost of supplying them by individual effort, or that the city railroads could be run at public expense so as to give every one transportation at very much less than it now costs the average resident, the increased taxation necessary for these purposes would not be increased burden, and in spite of the larger taxation required, New York would become a more desirable place to live in. It is a mistake to condemn taxation as bad merely because it is high; it is a mistake to impose by constitutional provision, as in many of our States has been advocated, and in some of our States has been done, any restriction upon the amount of taxation. A restriction upon the incurring of public indebtedness is another matter. In nothing is the far-reaching statesmanship of Jefferson more clearly shown than in his proposition that all public obligations should be deemed void after a certain brief term — a proposition which he grounds upon the self-evident truth that the earth belongs in usufruct to the living, and that the dead have no control over it, and can give no title to any part of it. But restriction upon public debts is a very different thing from restriction upon the power of taxation, and reasons which urge the one do not apply to the other. Nor is increased taxation necessarily proof of governmental extravagance. Increase in taxation is in the order of social development, for the reason that social development tends to the doing of things collectively that in a ruder state are done individually, to the giving to government of new functions and the imposing of new duties. Our public schools and libraries and parks, our signal service and fish commissions and agricultural bureaus and grasshopper investigations, are evidences of this.

But while no limit can be properly fixed for the amount of taxation, the method of taxation is of supreme importance. A horse may be anchored by fastening to his bridle a weight which he will not feel when carried in a buggy behind him. The best ship may be made utterly unseaworthy by the bad stowage of a cargo which properly placed would make her the stiffer and more weatherly. So enterprise may be palsied, industry crushed, accumulation prevented, and a prosperous country turned into a desert, by taxation which rightly levied would hardly be felt. ...

For, keeping in mind the fact that all wealth is the result of human exertion, it is clearly seen that, having in view the promotion of the general prosperity, it is the height of absurdity to tax wealth for purposes of revenue while there remains, unexhausted by taxation, any value attaching to land. We may tax land values as much as we please, without in the slightest degree lessening the amount of land, or the capabilities of land, or the inducement to use land. But we cannot tax wealth without lessening the inducement to the production of wealth, and decreasing the amount of wealth. We might take the whole value of land in taxation, so as to make the ownership of land worth nothing, and the land would still remain, and be as useful as before. The effect would be to throw land open to users free of price, and thus to increase its capabilities, which are brought out by increased population. But impose anything like such taxation upon wealth, and the inducement to the production of wealth would be gone. Movable wealth would be hidden or carried off, immovable wealth would be suffered to go to decay, and where was prosperity would soon be the silence of desolation. ...

See how unjust and short-sighted is this system. Here is a man who, gathering what little capital he can, and taking his family, starts West to find a place where he can make himself a home. He must travel long distances; for, though he will pass plenty of land nobody is using, it is held at prices too high for him. Finally he will go no further, and selects a place where, since the creation of the world, the soil, so far as we know, has never felt a plowshare. But here, too, in nine cases out of ten, he will find the speculator has been ahead of him, for the speculator moves quicker, and has superior means of information to the emigrant. Before he can put this land to the use for which nature intended it, and to which it is for the general good that it should be put, he must make terms with some man who in all probability never saw the land, and never dreamed of using it, and who, it may be, resides in some city, thousands of miles away. In order to get permission to use this land, he must give up a large part of the little capital which is seed-wheat to him, and perhaps in addition mortgage his future labor for years. Still he goes to work: he works himself, and his wife works, and his children work — work like horses, and live in the hardest and dreariest manner. Such a man deserves encouragement, not discouragement; but on him taxation falls with peculiar severity. Almost everything that he has to buy — groceries, clothing, tools — is largely raised in price by a system of tariff taxation which cannot add to the price of the grain or hogs or cattle that he has to sell. And when the assessor comes around he is taxed on the improvements he has made, although these improvements have added not only to the value of surrounding land, but even to the value of land in distant commercial centers. Not merely this, but, as a general rule, his land, irrespective of the improvements, will be assessed at a higher rate than unimproved land around it, on the ground that "productive property" ought to pay more than "unproductive property" — a principle just the reverse of the correct one, for the man who makes land productive adds to the general prosperity, while the man who keeps land unproductive stands in the way of the general prosperity, is but a dog-in-the-manger, who prevents others from using what he will not use himself.

Or, take the case of the railroads. That railroads are a public benefit no one will dispute. We want more railroads, and want them to reduce their fares and freight. Why then should we tax them? for taxes upon railroads deter from railroad building, and compel higher charges. Instead of taxing the railroads, is it not clear that we should rather tax the increased value which they give to land? To tax railroads is to check railroad building, to reduce profits, and compel higher rates; to tax the value they give to land is to increase railroad business and permit lower rates. The elevated railroads, for instance, have opened to the overcrowded population of New York the wide, vacant spaces of the upper part of the island. But this great public benefit is neutralized by the rise in land values. Because these vacant lots can be reached more cheaply and quickly, their owners demand more for them, and so the public gain in one way is offset in another, while the roads lose the business they would get were not building checked by the high prices demanded for lots. The increase of land values, which the elevated roads have caused, is not merely no advantage to them — it is an injury; and it is clearly a public injury. The elevated railroads ought not to be taxed. The more profit they make, with the better conscience can they be asked to still further reduce fares. It is the increased land values which they have created that ought to be taxed, for taxing them will give the public the full benefit of cheap fares. ... read the whole article

Rev. A. C. Auchmuty: Gems from George, a themed collection of excerpts from the writings of Henry George (with links to sources)

THE mode of taxation is quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in another way, could be borne with ease. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

IF we impose a tax upon buildings, the users of buildings must finally pay it, for the erection of buildings will cease until building rents become high enough to pay the regular profit and the tax besides. If we impose a tax upon manufactures or imported goods, the manufacturer or importer will charge it in a higher price to the jobber, the jobber to the retailer, and the retailer to the consumer. Now, the consumer, on whom the tax thus ultimately falls, must not only pay the amount of the tax, but also a profit on this amount to everyone who has thus advanced it — for profit on the capital he has advanced in paying taxes is as much required by each dealer as profit on the capital he has advanced in paying for goods. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

THE way taxes raise prices is by increasing the cost of production, and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore though a tax on rent compels the landowners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

... go to "Gems from George"

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)



Taxes are either direct or indirect; or, as they have been aptly described, "straight" or "crooked." Indirect taxes are those that may be shifted by the first payer from himself to others; direct taxes are those that cannot be shifted.5

The shifting of indirect taxes is accomplished by means of their tendency to increase the prices of commodities on which they fall. Their magnitude and incidence 6 are thereby disguised. It was for this reason that a great French economist of the last century denounced them as "a scheme for so plucking geese as to get the most feathers with the least squawking."7 ... read the book

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q19. Why should buildings and all other improvements and personal property and capital be exempt from taxes?
A. Because a tax on them falls upon industry, and so increases the cost of living, while continuing the invidious exemption of the present net land value.

Q45. Why tax $1,000 invested in a vacant lot while exempting $1,000 invested in New York Central stock?
A. Because: (1) the land is made worth $1,000 and so maintained at public expense without any contribution from the owner; (2) the $1,000 New York Central stock adds nothing to the public expense, but a tax upon it, if collected at the source, falls directly on the road and thence upon the public, and so adds to the cost of living.

... read the whole article

Mason Gaffney: Land as a Distinctive Factor of Production

Land normally does not depreciate as a function of time.  Most attributes of land also withstand use and abuse.  Most land is, rather, expected to appreciate in real value in the long run.  Values go in cycles, but the secular history is upwards as population, capital, and demands all grow while land remains fixed.  Capital has a period of formation during which it accretes value by storing up other inputs and changing physical form, but that is a phase.  Once formed, almost all capital fails with time.

Perhaps the most durable capital is intellectual, like the writings of Plato.  These, however, do not endure generations without the continual human effort and expense of education.  As schools starve and libraries close, it is sadly certain that much will be lost.  Under any conditions much is twisted in transmission, like classical economics itself. ...

... It follows that the demand for land arises over time with incomes, but faster than incomes.  Read the whole article

William F. Buckley, Jr.: Home Dear Home

So why is the cost of housing so high?

We learn that the average new house nationwide now sells for nearly $300,000. The writer tells us, "I asked (a builder) what our children -- my kids are both under 8, I told him -- would be paying when they're ready to buy.

"'They're going to live with us until they're 40,' (the builder) said matter-of-factly. 'And when they have their second kid, then we'll finally kick them out and make them pay for the house that we paid for. And that house will cost them 45 to 50 percent of their income.'"

Such data are dismaying, but perspective helps. "In Britain," the builder explains, "you pay seven times your annual income for a home; in the U.S. you pay three and a half." The Brits get 330 square feet per person in their homes; Americans, 750 square feet. But choice parts of the United States face "build-out." Consider New Jersey. It currently averages 1,165 people per square mile -- denser than India (914) and Japan (835).

And we confront, finally and inevitably, the question: What is to be done about it?

Almost without exception, housing specialists concur, high home prices are owing to zoning. Twenty years ago, in many quarters of the country, one year would go by before the political authority would permit a developer to begin housing construction. In New Jersey, that interval now approaches eight years. Delays of that kind have the effect of shrinking the amount of land on which houses can be constructed. We get the inflated costs so familiar. "(Some authorities) used sample prices from 25 areas to show that the cost of housing in a metropolitan area appears to be in direct correlation to its degree of zoning ordinances," Gertner writes.

This is a politically remote source of trouble. People who have to wait for a zoning agency to change its conventions, regulations, traditions and idiosyncrasies will be very old before they acquire a new home.

Henry George, the eminent social philosopher of a century ago, turned the attention of planners and economists, however briefly, to the indefeasible factor of land scarcity. Capital and labor can increase; land cannot. ... ... read the whole column



Mason Gaffney: The Red and the Blue

To understand the politics of New York City or San Francisco we need to begin by noting that they have about the highest residential rents and home prices in the U.S.A., along with the highest tenancy rates. It takes a high monetary income even to be poor in such places, unless you own land. Federal statisticians who publish the Consumer Price Index (CPI) delicately refrain from comparing different cities - they just compare different times, city by city. This helps them finesse tough questions about rents, and housing prices. Common observation, however, and various semi-popular publications, fill the gap.  The C.O.L., especially its rent and home value elements, is a lot higher in the big glamorous cities, so real incomes there are a lot lower than they look - unless you own land.

The City of Los Angeles in early December, 2004, condemned an apartment building in “south central,” the toughest slum area, to drive out violent gangs who make it their base and terrorize the neighborhood.  Were the other tenants grateful?  No, they protested.  “Where else can I rent for $600,” bemoaned one with a mistress and child, clinging to a one-bedroom place with a “ratty carpet, broken tiles, and roaches.”

“The People’s Republic of Santa Monica,” so-called by wags, has about the highest land values per square foot in the U.S.A.  Its enviable location is hard to beat. It also has a high rate of tenancy, and a City Council swayed by organized tenants. Color it blue: the tenants vote. Read the whole article

Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any one thing and find it connected to everything else in the universe." Tug on the property tax and find it connected to urban slums, farmland loss, political favoritism, and unearned equity with disrupted neighborhood tenure. Echoing Thoreau, the more familiar reforms have failed to address this many-headed hydra at its root. To think that the root could be chopped by a mere shift in the property tax base -- from buildings to land -- must seem like the epitome of unfounded faith. Yet the evidence shows that state and local tax activists do have a powerful, if subtle, tool at their disposal. The "stick" spurring efficient use of land is a higher tax rate upon land, up to even the site's full annual value. The "carrot" rewarding efficient use of land is a lower or zero tax rate upon improvements. ...

The other potentially supportive businesses -- service providers -- do not consume much in the way of resources or prime locations. Even service providers on valuable sites, were they to pay more, could still come out ahead in the better business climate of zero taxes on sales, on paid wages, on customers' income, and of less onerous mortgage. Presently taxes and mortgages consume about 65% of the average worker's income, drastically reducing discretionary spending. ...

A big problem needs a big solution which in turn needs a matching shift of our prevailing paradigm. Geonomics -- advocating that we share the social value of sites and natural resources and untax earnings -- does just that. Read the whole article

Jeff Smith: Planning by Markets
Taxes -- an aspect of politics, not markets -- motivate misuse of land.
  • The tax on buildings discourages maintenance and breeds slums (Lynn 1973). After the neighborhood really goes down hill and the owner has milked every last penny out of the structure, he just walks away. Thus urban cores decay (Pickard 1966), an entropy that seems inevitable yet is policy-induced(1).
  • In growing areas, custom design creates more valuable homes, hence more tax liability. To avoid the penalty, developers can under-build or sacrifice esthetics. Cookie-cutter developments all in a row reduce built value and property taxes(2).
  • Taxing sales raises the cost of living while taxing income lowers the ability to afford to live. Like a vise, regressive taxes squeeze out the discretionary income of the poor who cannot afford the city they may like. Necessity crams them into the structures that cut corners.

While taxes are creatures of legislatures, ground rent is a phenomenon of markets. What's political is what we do with it. Most of us forget it's there, letting it reward speculation and sprawl. ...  Read the whole article

Herbert J. G. Bab:  Property Tax -- Cause of Unemployment  (circa 1964)
When analysing property taxes we shall distinguish between that part of the tax which is assessed on improvements and that part which is assessed on land.

That part of the tax that is assessed on buildings penalizes everybody who improves his land, his buildings or intends to construct residential, commercial or industrial property. The most serious incidence of property taxes is on new housing. When rental property or houses are newly constructed these taxes add 15 to 20% to the annual cost depending on assessment practices and tax rates.

"In 1962 property taxes on new F.H.A. insured houses averaged $14.30 per month, or $171.60 per year, excluding that part of the tax that was assessed on the land. Assuming that a family spends 20% of its income on housing, the income of a family must increase by $858 per year in order to afford the purchase of a home. In this way many families in the lower income group are priced, or taxed, out of the market. And residential construction, a mainstay of our economy, is discouraged."

"In 1963 HOUSING STARTS reached a level of 1.6 million units, representing a value of about $20 billions. Yet very few houses were built in the central areas of our cities and a large part of these houses were built for families in the middle or upper income group. Of these single-family homes, only 15% were sold for less than $12,500. Another 15% sold for between $12,500 and $15,000. Thus 70% of these homes cost $15,000 or more. This is so because under our income tax laws property taxes and interest charges are deductible items. A person in the 75% bracket pays only 25% of these costs and a person in the 50% bracket pays only half the property taxes and half the interest charges."
The steep increase in the level of rentals represents a true and accurate yardstick of our housing shortage. During the period 1950 to 1961
  • the average rental rose from $71.13 per month to $186.79 or by 160%.
  • During the same period median urban family income rose from $3,497 to $5,924 or by only 69%. 
  • Construction costs per square foot rose from $8.68 in 1950 to $11.32 in 1961 or by only 30.4%.
The ever widening gap between the level of rentals and the urban family income constitutes a rental squeeze, which has brought untold misery and hardship to families in the lower income group, especially to those belonging to minority groups. The rental squeeze has also aggravated overcrowding and slum conditions.

In the press, on the radio and on television we are often warned about the threat of inflation. Hardly ever are we told, that the increase in the cost of living is to a large extent due to the increase in housing costs brought about by the housing shortage.Read the whole article The inflationary effects of property taxation are reinforced by the fact that property taxes themselves are included in the cost of living index and that property tax rates have the tendency to rise.

The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath (Ireland): Back to the Land (1881) 
Higher Money Wages but Lower Purchasing Power.
Does it therefore follow that the strong, widespread and permanent feeling of discontent which prevail among the labourers is the result of fancy or imagination, having no solid foundation whatever in fact?

Undoubtedly this feeling proves the labourers to have substantial grievances, although I think they have failed to trace them to the causes that have really produced them. The money wage of the English operative is now considerably higher than in any past period of English history. But if his money wage is now high, the price of the raw products of the soil, that is to say, of the necessaries and comforts of life, is vastly higher still.

A given amount of money will not now procure for him the same quantity of food and of the other necessaries of life as formerly. In purchasing the raw products of the soil, he must pay not only for the necessaries and comforts of life which he enjoys himself, but also for the comforts and luxuries which go to the enjoyment of the owners of the soil. The price, therefore, of the raw products is a payment and a tax; a payment for what he consumes himself, and a tax for what is consumed by others.

Then again, a vast margin of the earnings of the English people is expended in direct and indirect taxation. The public burdens of every nation fall mainly on the vast masses of that nation, and the operatives of England are the vast masses of the English nation.

If the English operatives could only retain for their own use and benefit the vast sums which, under the existing system of Land Tenure, go on the one hand to the owners of the soil, and the sums that an economical system of taxation would save for them on the other, their material comforts and enjoyments would be multiplied a hundred fold. Under the existing state of things their condition is utterly incapable of any improvement in the future. Read the whole letter

Weld Carter: An Introduction to Henry George

Another area in which George applied these inherent differences between land and products was the field of taxation. To determine the incidence of taxation, George had to know what was to be taxed, products or the value of land. In each case he traced out the effect from the essential nature of the thing to be taxed: "...all taxes upon things of unfixed quantity increase prices, and in the course of exchange are shifted from seller to buyer, increasing as they go. ...If we impose a tax upon buildings, the users of buildings must finally pay it, for the erection of buildings will cease until building rents become high enough to pay the regular profit and the tax besides. ...In this way all taxes which add to prices are shifted from hand to hand, increasing as they go, until they ultimately rest upon consumers, who thus pay much more than is received by the government. Now, the way taxes raise prices is by increasing the cost of production, and checking supply. But land is not a thing of human production, and taxes upon...[land value] cannot check supply. Therefore, though a tax on...[land value] compels the land owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land."

Here, then is another derivative difference between land and products, according to George: taxation on products causes an increase in the price of products; taxation on the value of land causes a drop in the price of land.  ... read the whole article

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Wealth and Want
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