Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
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Home Equity

Many homeowners on the two ocean coasts have more net income from rising land values than they do from their own labor.  They can borrow against this increasing home equity, giving them many more options than their neighbors who rent or than their fellow homeowners in the red counties between the coasts.

Mason Gaffney, correspondence (used with permission)

We, like you no doubt, are basking in the unearned increment of the land under our house, turbo-charged by tax-exemption.  Two of our older children in Marin County are basking, too, and we take comfort in their well-being.  We deserve this, right?  Are we not of The Greatest Generation (how we love that toadying title)?  But how will your grandchildren afford a home at today's prices?  We get the increment, but they get the excrement.  Oh, well, the plunging dollar, crumbling infrastructure, far-called navies and troops melting away, soaring interest rates, higher taxes, incredible public debts coming due ... it'll all be different soon.  We may all grow poor together.

Lindy Davies: Land and Justice

Wealth — products, widgets — these things are made by human beings. If customers are willing to buy more of them, then manufacturers will make more of them. But human beings can't make land. The supply of land cannot be increased. If the demand for land increases, only one thing can happen: its price will go up.

The owners of land see population and production go up, up, up — and no more land. So, they will only put their land to use if they have an immediate need for the cash. If they can afford to wait, they will wait, because they expect the land's value to increase with time.

That, in a nutshell, is the key to the land problem — the problem of poverty.

That is why millions upon millions of people who are willing and able to work cannot find work, even while millions upon millions of acres of useable land (city land, industrial land, farm land, you name it) are held idle.

This leads to no end of problems. In the United States, it brings urban blight and suburban sprawl, which disrupt communities, and waste energy and resources. You don’t think under-use of land is that big a deal? Consider the fact that in the five boroughs of New York City, 7.5% of its land, or 18.6 square miles, is vacant. That’s buildable land, not parks or streets. And, of course, a great deal more land in New York, as in every other city, is used somewhat, but far less than the local economy would support. New York City has about 80 people per acre of residential land. That means that New York’s vacant land could house another 956,000 people at current density levels, without even starting to use its vast stock of under-used land.

Even though downtowns are underbuilt, people want to move away from the high prices and high crime rates they often find there — so development leapfrogs, using far more land than is necessary, jacking up the price of farmland near the city — so that local farms can no longer compete. All this sprawl creates more and more need for roads — provided by tax dollars, of course. With all these roads, and all these cars, public transportation systems become less popular and harder to finance. This chokes the cities with even more traffic, making them even less desirable places to be. Meanwhile, all these subsidized highways are just great for the big trucks, burning subsidized fuel, carrying imported merchandise to all the big-box stores and franchise restaurants of suburbia. In other words: two of the hugest problems that progressives are trying to address today — the decay of communities and the rise of the corporate big box — are all about the land.

Around the world, it gives too much power to the banks, for land is by far the greatest source of collateral for loans, everywhere. The more money we have to pay for land, the more power we give to the banks. Although 66% of American families own their homes, the overall net equity of American home “owners” is only 18%.

It’s all about treating the land as an “asset.” ... read the whole speech

Mason Gaffney: Unearned increments and reality in California's recall election

California homeowners are wallowing in unearned increments beyond the dreams of avarice, while its governments are courting bankruptcy. Warren Buffett dared point this out, and overnight changed from the Oracle of Omaha into the Numbskull of Nebraska because he does not understand the "reality of California politics," the oxymoron du jour.

Most candidates for Governor fled like startled deer. Buffett's sponsor, well-tailored Mr. Muscles, recalled meeting a tearful widow who said she would have been taxed out of her home were it not for Prop 13. Poor thing, her home had risen in value. No one asked her name, or whether she knew what she was talking about, or had her claims audited - being a tearful widow "on a fixed income" insulates one from reality checks. The press chimed in with pix of poster oldsters, gazing from their multi-million dollar perches over the blue Pacific, fretting about Buffett's solecism and its possible effect on them, never mind anyone else.

Fact is, unearned increments ARE income, at the time they accrue. Illiquid? They are better than cash income because you can turn them into cash by borrowing on them, and pay no income tax on the cash. If you have trouble with that, the tax man himself will arrange it for you by placing a tax lien on your appreciated home, rather than foreclose and evict you. This helps explain why we never actually see one of these evicted widows suffering from unearned increments -- they are maudlin figments for mythmakers. The evictees we do see are renters who couldn't pay, and had no equity to mortgage. Who cries for them? ...
Governor Gray Davis, supposedly fighting to close a deficit, chimed in endorsing Prop 13, citing the mythical widow again to explain why non-residential property, about 2/3 of the tax base, should enjoy low rates. Faced with a negative poll, he backed right down from his "land tax on wheels," the higher vehicle registration fee.
  • No one has said a word about a severance tax on oil and gas, although California is the only major producing state without one. 
  • No one has crusaded for a severance tax on water withdrawals, although it would solve both our revenue and water crises in one stroke.
  • No one has said word one about taxing the taboo lands used for golfing, timber, or farming. ... 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. ...

"Home equity" (actually, site equity), the only equity most people have, would be consumed by the land dues. Eventho' the complete geonomic tax shift would let people improve their homes, increase their incomes, expand their businesses, and augment their savings without increasing their tax liability, homeowners would still lose their "home equity." Proponents need to lead off with the bottom line and underscore the fact that even with lost equity, numbers show a vast majority would pay less were taxes shifted. Those savings could be invested in stocks or bonds for an equivalent return. And were the new policy to include a per capita rebate, then the geonomic package would merely convert one's expected equity into a certain annuity. Instead of cashing in one big lump sum later, residents would be cashing in smaller amounts all along. ...

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: Sharing Natural Rents to Sustain Human Society

Construction - Sprawl vs. Eco-City

  • Rent. This social surplus is why developers build sprawl, not car-free villages. Rent, so-called "equity," is what homeowners borrow against for a bout of consumeritis.
  • Taxes. The property tax assessment is skewed toward the building, away from the land, benefiting speculators and developers, not owners. Localities often abate the tax for years for developers and major corporations who sprawl on new campuses.
  • License: The price of new homes too close to streams or on freshly cleared hillsides does not include the cost of washing out the homebuyers or their neighbors.
  • Subsidy: Where new homes go in, localities pick up the tab for new schools and infrastructure, saving developers $25,000 per home (Better Not Bigger, Eben Fodor, 1999). When people build on floodplains and get flooded out, the federal government bails them out (National Wetlands Newsletter, 1993, Scott Faber). ...

Henry David Thoreau said the best thing government can do for business is get out of it. Nevertheless, some hope to shift subsidies from grey bads to green goods. Yet the state need not subsidize at all. It's dauntingly difficult to know whom to fund; a solar steam generator may be the most promising idea one day while photovoltaics are the next. Efficient alternatives don't need largesse but fairness. A handout shields new industry from the forces that compel efficient growth. The best thing government can do for the environment is exit environmental enterprise. ... 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