Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
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Recycling Revenue

A lot of local land rent leaves town, going into the pockets of absentee owners, family trusts, corporations, real estate investment trusts.  A lot of local mortgage repayments leave town, into the pockets of, for example, GM (Di-tech Funding), large banks and a lot of other corporations.  A lot of high-end Florida retirements are funded by buyers and renters in high-growth markets.  Meanwhile, young families struggle to pay high mortgages and potential entrepreneurs are discouraged by high rents, and a lot of centrally located land goes underused. 

A better alternative would be to keep that land rent local, and let it be the foundation of local spending on schools and infrastructure.

Everett Gross: Explaining Rent

Sometimes it's difficult for people to understand the meaning of "rent" as an economic concept. One way I have of explaining it doesn't use the word rent. I just use a little analogy.

I'm from Crete, Nebraska. It's a small town of 5,000 people.

Suppose a man comes to Crete, and he wants to start a business. He needs a building, but first he needs a piece of ground to build this new building on. So he looks up a real estate agent, describes what he wants, and the real estate agent shows him a parcel that's just right for his needs. The man asks the agent, "All right, now how much money do you want for this land?" The agent says, "It's worth $50,000." The man says, "Why is it worth $50,000?" And the real estate agent points out that "The school is good, the roads are good, the police department is good, the rescue crew is good and very fast, and business is good here."

So the man says "Yeah, I believe that $50,0000 is a fair price. I'll take it. How do I pay the $50,000 to the school people, and the road people, and the police department? To whom do I pay the $50,000?" And the real estate agent says, "Oh no. You don't pay it to them. You pay it to the person who owned the land before."

The man says, "But who supports the schools, and the roads, and the police, and the other good things?" And the real estate agent says, "If you build, then you'll pay for them again."

The buyer then asks, "And what will the previous owner do for me for my $50,000?"  The real estate man answers, "Nothing!  Nothing at all!"

Now I don't need to use the word "rent" in that explanation. ... see the whole story, including Dave Wetzel's version

Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax

I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to Land Value Taxation

A simple model will serve to illustrate. Presently, rail/metro infrastructure is almost prohibitively expensive because the windfall benefits are effectively handed over to landowners. To partially recoup the outlay, authorities are forced to set fares so high as to act as a disincentive to potential low-impact commuters.

Enter LVT. Land values enhanced by the infrastructure are "recycled" by LVT back into the public purse. This enables fares to be reduced, which makes the adjacent land more valuable because it now has access to cheaper public transport. These resulting enhanced land values are again recycled back to the community coffers, which again allows low fares which allow more recycled enhanced land values, which allow lower fares which allow..... While illustrating the process, in practice such iterations would be bypassed as authorities would cut to the chase and set the most economically and environmentally desirable fare structure, which equals the marginal cost of traveling, and not have to dig into scarce public funds to finance such projects. ...   read the entire article


Charles T. Root — Not a Single Tax! (1925)

"If taxation is unnecessary, what is to take its place? Government and its functions are increasingly expensive. They require a lot of money. Where is it to come from?" The answer may be placed in the form of a second proposition:

Every community, whatever its political name and extent — village, city, state or province or nation — has its own normal, unfailing income, growing with the growth of the community and always adequate to meet necessary governmental expenditure.

To explain: Every community has an indefeasible original right to the land on which it exists, and to all the natural, unmodified properties and advantages of that particular area of the earth's surface. To this land in its natural state, undrained, unfenced, unfertilized, unplanted and unoccupied, including its waters, its contents and its location, every individual in the community (which may consist of any political unit selected) has an equal right, while all the individuals together have a joint right to the value for use which society has conferred upon these natural advantages.

This value for use is known as "Land Value," or by the not particularly descriptive but generally adopted name of "Economic Rent."

Briefly defined the land value or economic rent of any piece of ground is the largest annual amount voluntarily offered for the exclusive use of that ground, or of an equivalent parcel, independent of improvements thereon. Every holder or user of land pays economic rent, but he now pays most of it to the wrong party. The aggregate economic rent of the territory occupied by any political unit is, as has been stated above, always sufficient, usually more than sufficient, for the legitimate expenses of the government of that unit. As also stated above, the economic rent belongs to the community, and not to individual landowners.

On the other hand, the result of every utilization or enhancement of the natural advantages of land (such as farm profits, the rent and selling value of buildings and other improvements), when accomplished by an individual, belongs wholly to that individual, and should never, and need never, be taken from him by taxation. ... read the whole article



Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

Some may wonder why anyone would own land if most of the rent is taxed away. One would own land for the same reason people rent land: in order to use it. Ownership also gives the title holder rights of possession, the ability to control the use of the site indefinitely.

Today there is also a speculative motive for owning land, to profit from the increase in its price. With most of the geo-rent tapped for public revenue, the speculative motive would be dampened. That would benefit the economy, since with a lower price of land, funds that now go to buy land would instead go to build more capital goods, hire more labor, or provide better training.

The tax on the geo-rent would be borne by the owner, not the tenant. If a landlord, who was already charging what the market could bear, tried to pass on the tax, he would face vacancies. Some say that since the tax would be invisible to renters, the link between using public services and paying for them would be broken. But productive public services increase the geo-rent, so that link is there. If government revenue is wasted, then indeed this does not generate rent, and a land value tax without corresponding benefits would reduce land value. Pressure for a productive use of public revenue would come from the landowners more than from the tenants. But that is no different than the situation today; poor folks pay little or no income tax and no property tax, and typically they get government assistance. This is an argument not against the use of rent, but in favor of privatizing government programs. In the private sector, the link between ownership and control is stronger. ... read the whole document


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. ...

With first Spanish and then Mexican control, much California land had been pueblo, or public. Though very little of that pueblo land remains, some of it is still quite valuable. In the 1960s, various towns sitting on San Diego Bay designated their water fronts as the Port District. The Port Authority collects hundreds of millions of dollars of land rents each year and is one of few local government agencies with a consistently positive cash flow. Where does that cash flow to? While not into any bloated bank accounts of private owners, by law it can not flow back to the "pueblo." Instead, it must be spent by the Port Authority who tend to take numerous trade missions to exotic destinations and redecorate their offices each year. ...

Land that is higher taxed is lower priced. Cheaper land reduces buyers' debt. Less demand for loans lowers the lending rate. Cheaper capital means more investment and more employment. In Australia, in the province around Melbourne, some towns levy the regular property tax, others tax only land. Those with the same rate for sites and structures suffer more bankruptcies; those with one rate for land enjoy more successful business start-ups.

The PTS encourages investing in high-yield use of parcels. Developing land generates jobs in construction. As those construction workers spend their incomes, they generate more business for local merchants. For the few years that New York exempted buildings in the 1920s, the city boomed more than any other US city. In New Zealand, over 80% of the towns tax land, not buildings. Before the 70's oil shock hit, they enjoyed over a decade of employment at 99%.

A stable source of revenue is a virtue in the eyes of any government. When recession strikes, governments that tax income or property must borrow more to make ends meet. The disincentives built into ordinary taxes deepen and prolong the recession. When taxes upon effort are eased, the economies can recover.

The PTS can cure local recessions. Spurring building, while not burdening it, keeps a web of regional suppliers, installers, architects, financiers, and others in greater demand.  ...

Not only is the PTS efficient, it is also fair. For ages, people have debated the just basis for taxation: ability to pay versus benefits received. The property tax shift settles the argument in favor of both sides.

First, land "dues" (taxes, fees, liturgy, or some combination of the forgoing), especially when coupled with an untaxing of homes, jobs, and enterprises, are inherently progressive.
Second, land dues are scaled according to site values. Site values measure not what an owner puts into the "common kitty" but what one takes out. A prime location has the most advantages; it's the one enjoying the best that society and nature have to offer. For owners to enjoy those locations exclusively, and to pay more for doing so, is exquisitely just.

Eventho' almost everyone would worry about paying more tax, the PTS is inherently progressive. Studies of the towns in Pennsylvania that have shifted some tax from buildings to land show that about 75% come out ahead (nearly the entire bottom four quintiles of income earners), 20% break even and 5% pay more (together a bit larger than the top quintile of income recipients), who are usually absentee owners.

First-time home buyers make out like bandits. They'd pay a higher land dues to their community but lower total taxes to government, a lower price to the seller, and a lower mortgage to the lender. Is it fair that one group should benefit so prodigiously? Yes. In many US cities, renters now outnumber owners. High rates of tenancy, as shown in Goldschmidt's 1940s study of the Central California towns Arvin and Dinuba, engender apathy and indifference, which are bad for democracy, community involvement, street safety, and environmental protection. The sooner young families can become homeowners, the better off all members of society will be.

Presently, when land prices rise (or the land tax), owners charge more to buyers and renters. After a PTS, the higher rate on land makes owners eager for customers. Plus, there'd be more owners in competition, as former speculators become new developers. Thus the PTS stabilize prices, saving money for small businesses and those in the lower income brackets. ...

What's won or lost is a value generated by society. That is, land rises in value
  • where a new resource is discovered (during a gold rush, more money is made by land developers than by prospectors),
  • where population grows (see the Sun Belt and verdant Northwest),
  • where technology advances (witness the land values in the various Silicon Valleys, Forests, etc),
  • where infrastructure expands (e.g., near a new road or sewer), and
  • where society cooperates (e.g., in communities that organize street fairs, neighborhood watches, etc).
These factors driving land value are not improvements made by lone owners but by the entire community. The closest correlation to land value is density and no one person creates that. Hence the site value levy merely puts public values in the public treasury for public benefit, as untaxing homes, sales, and income leaves privately-generated values in private pockets. ...

While beneficiaries have a hard time envisioning their gains, losers have an easy time calculating their losses. The big loser is not homeowners; while losing equity, they keep all earnings untaxed. Nor is it realtors, while losing their few big sales, they gain many smaller ones. Nor is it developers; while paying higher infrastructure fees, they'd pay less for prime land. No, the big losers would be banks who'd have to readjust to pre-World War II levels of lending rates. As they probably won't want to give up their unearned income, advocates of PTS will need to use moral arguments (as in the struggle against slavery) to gain public support and use practical arguments to pry realtors, developers, service businesses, and small businesses aside, thereby isolating lenders.

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

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