Wealth and Want
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I know of a woman — I have never had the pleasure of making her acquaintance, because she lives in a lunatic asylum, which does not happen to be on my visiting list. This woman has been mentally incompetent from birth. She is well taken care of, because her father left her when he died the income of a large farm on the outskirts of a city. The city has since grown and the land is now worth, at conservative estimate, about twenty million dollars. It is covered with office buildings, and the greater part of the income, which cannot be spent by the woman, is piling up at compound interest. The woman enjoys good health, so she may be worth a hundred million dollars before she dies.

I choose this case because it is one about which there can be no disputing; this woman has never been able to do anything to earn that twenty million dollars. And if a visitor from Mars should come down to study the situation, which would he think was most insane, the unfortunate woman, or the society which compels thousands of people to wear themselves to death in order to pay her the income of twenty million dollars?

The fact that this woman is insane makes it easy to see that she is not entitled to the "unearned increment" of the land she owns. But how about all the other people who have bought up and are holding for speculation the most desirable land? The value of this land increases, not because of anything these owners do — not because of any useful service they render to the community — but purely because the community as a whole is crowding into that neighborhood and must have use of the land.

The speculator who bought this land thinks that he deserves the increase, because he guessed the fact that the city was going to grow that way. But it seems clear enough that his skill in guessing which way the community was going to grow, however useful that skill may be to himself, is not in any way useful to the community. The man may have planted trees, or built roads, and put in sidewalks and sewers; all that is useful work, and for that he should be paid. But should he be paid for guessing what the rest of us were going to need?

Before you answer, consider the consequences of this guessing game. The consequences of land speculation are tenantry and debt on the farms, and slums and luxury in the cities. A great part of the necessary land is held out of use, and so the value of all land continually increases, until the poor man can no longer own a home. The value of farm land also increases; so year by year more independent farmers are dispossessed, because they cannot pay interest on their mortgages. So the land becomes a place of serfdom, that land described by the poet, "where wealth accumulates and men decay." The great cities fill up with festering slums, and a small class of idle parasites are provided with enormous fortunes, which they do not have to earn, and which they cannot intelligently spend.

This condition wrecked every empire in the history of mankind, and it is wrecking modern civilization. One of the first to perceive this was Henry George, and he worked out the program known as the Single Tax. Let society as a whole take the full rental value of land, so that no one would any longer be able to hold land out of use. So the value of land would decrease, and everyone could have land, and the community would have a great income to be spent for social ends. ...

In Philadelphia, as in all our great cities, are enormously wealthy families, living on hereditary incomes derived from crowded slums. Here and there among these rich men is one who realizes that he has not earned what he is consuming, and that it has not brought him happiness, and is bringing still less to his children. Such men are casting about for ways to invest their money without breeding idleness and parasitism. Some of them might be grateful to learn about this enclave plan, and to visit the lovely village of Arden, and see what its people are doing to make possible a peaceful and joyous life, even in this land of bootleggers and jazz orchestras. read the whole article



Mason Gaffney: The Taxable Capacity of Land

 To stimulate building is also to uphold and fortify the tax base, even though you do not tax the new buildings directly. Some people fault the "depressing" canyons of Manhattan, between the skyscrapers. In my observation, it is not the canyons that depress Manhattan. When the GM building went up, Fortune Magazine reported it doubled the rents of stores across the deep canyon so formed. Its spillover effects were highly positive. What really depresses Manhattan are rather the centenarian firetraps and the activities they attract. They tend to downvalue other lands nearby, eroding the tax base.

 Consider the effect of floorspace rentals on ground rents and land values. Doubling floorspace rentals will more than double land values, through a kind of leverage effect. That is because all cash flows above a constant amount required for the building will inure as ground rents. The higgling and arbitrage of the market will see to that. Once that constant is met, everything above it goes to landownership as such, raising land prices which are the land tax base.

 When you observe cities much, the positive neighborhood effects of replacing old buildings with new are irresistible and contagious, raising land prices all around. The converse is also true: the negative neighborhood effects of letting old junkers stand without replacement are depressive. Thus, when you take the tax off new buildings, and put it on the land under old tumbledowns, you kick off a general process of revitalization that turns gloom into hope into optimism: optimism that boosts land prices and the land tax base.
 There are three kinds of slums.
  • Type I slums develop on land in the van of downtown expansion, on land held for a future higher use. The speculators are milking the old structures for any residual value. They don't much mind when the tenants leave, and spare them the trouble of an eviction when they want to sell or rebuild. That's what they're in it for: the current use is incidental.
  • Type III slums (listed here out of numerical order) develop on land that is no good, and may never be, like floodplains and earthquake faults. They also develop around abbatoirs, dumps, stockyards, etc., although these are subject to change. In either case, people are driven there by the inadequate development of good land.
  • Type II slums, our focus here, are the most extensive. They occur on good or superior residential land originally developed over fifty or a hundred years ago. It may once have housed the upper crust, but as the buildings aged without replacement they "filtered down," and down, and down, until their occupants began radiating negative neighborhood effects. There comes a tipping point where the neighborhood self- destructs cumulatively, because no one wants to build new in a decayed, menacing neighborhood. The renewal value of land is lost, the tax base is lost, nothing remains but social and public costs: a municipal disaster area. The city that fails to renew itself on time is steering itself to this fate, like Camden, the Bronx, East St. Louis, Benton Harbor, MI, and Detroit.

 That's the bad news. How do you turn it around? When you drop buildings from the property tax base, you change the arithmetic of incentives, as we have discussed. Parachuting into the middle of a slum is still hopeless, as before. Change will come first to the fringes of the Type II slum, where it merges into healthy neighborhoods. New development likes to anchor onto healthy neighborhoods. Richard Hurd, father of urban studies in America, taught us in 1902 that land values are marked by continuity in space. It's still so. Fashions and technology change, but principles last. Hope survives at the edge of the slum; land there retains some renewal value. There is where you'll first see change, because there is where the forces are evenly balanced. Tip the forces for renewal, and there is where it begins.

 Once it begins, it proceeds incrementally through the Type II slum. When it's through, your oldest neighborhood has become your newest, the cutting edge of progress, the showplace of the town. That is how it has got to work; that is how it will work when you exempt buildings and tax only land. When it is through, you have a high tax base where now you have nothing but fire and police calls.  ...   Read the whole article
Karl Williams:  Social Justice In Australia: INTERMEDIATE KIT
Want another classic example of the madness of our current neoclassical economic system? Melbourne's Dockland Project is such, in the sense that it took so long to happen. Look at what we had - a vast expanse of idle land and derelict buildings sitting right next to the central business district for decades. The Docklands area was a waste of enormously-valuable real estate because of our failure to collect the LVT, which would have otherwise financially obliged the owners to put the land to its full potential or to have passed on the land titles to those who would do so.

But examples abound of needless urban decay - poorly maintained housing, fields in urban areas with nothing on them except thistles, outdated infrastructure, old and unused warehouses with rusted roofs and broken windows etc. Once again, we lack LVT to get things (and unemployed people) moving. And at present, even if you do put land to use, you're going to be hit with taxes if you make an income or profit, even though you're employing people and are of benefit to society by offering your goods and services.

What we should be doing is
  • taxing bads, not goods. Bads here is the array of wasted resources that leads to decay, and goods are the honest endeavours of people working in a free and a fair market.
  • Or put it this way: tax waste, not work.
  • Or pay for what you take, not what you make.
Some may object that we do have some sort of state land tax as well as the property taxes of local governments!" However, "property" is a woolly word which, in our current understanding, can mean land and/or capital - two very different things. Where property taxes are actually LVT (often termed site value rating at local government level) they are equitable and beneficial, but the problem is they are minuscule and misapplied in a number of ways. But where property taxes are (more commonly) a tax on land and improvements (such as buildings), the effect is entirely different. When the owner does, for example, build a house or renovate a derelict building, up will go his/her property taxes!

What society needs is a tax system which encourages land to be put to its optimum use, and for productive labour to be free of punitive taxation. Instead we have a system in which it is profitable for landowners to sit and wait for their land value to appreciate, while honest enterprise is treated as a cash cow by our tax system.

Our conditioning has somehow led us to accept this economic and social madness. We might travel to work and glance at an empty block of land worth millions of dollars, yet not think twice about it. Once we arrive at work, however, our mind-set is - curiously - very different. Hey! - the new printing press or forklift truck has arrived, worth a hundred thousand dollars! How long do you think management will let this valuable piece of machinery lie idle on the factory floor?

The same profit motive that compels someone to tear off the shrink-wrap at once and get their new equipment working can also be applied to the occupancy of land. To drive the point home so that your all-taxes-are-the-same programming is forever deleted, take an everyday example of a valuable block of land a person might occupy. The land's value has been built up by the community as a result of the surrounding amenities, so the occupier is rightly subject to a certain amount of LVT. Knowing the assessed LVT, the land will put people to work rather than weeds. Or, if the land is really valuable, it might have a modern, efficient multi-story building on it rather than an old single-story building or a car park.  Read the entire article

Mason Gaffney:  Full Employment, Growth And Progress On A Small Planet: Relieving Poverty While Healing The Earth
Renewal as intensification. George observed land speculation in California when it was young and raw. Today, an equally or more baneful aspect of underusing land is found in older blighted slums, where underuse takes the form of non-renewal. Thus, land of high capacity is providing only minimal service and employment. Why do we not get timely renewal? The most obvious reason is that the sites under old buildings bear low tax valuations, because assessors mistake the building for the site and overlook its reuse value, or opportunity cost. Let the owner renew the site, and taxes shoot up: not only on the new building, but often on the site as well. Result: nonrenewal. So capital that should go to renew these sites of high potential migrates outward instead, to where tax rates are lower and subsidies are higher, wasting capital in duplicating the infrastructure, and of course also wasting land.

Many Georgists fail to see that a major part of the problem is underassessment of the land. Land is underassessed when tax-valuers lapse into using the “building-first, land-residual” method of separating land from building values. This results in land valuations so absurdly low that one observes, in many cities and neighborhoods, most of the joint value of land/building being allocated to the building in the very year that the owner chooses to demolish the building, i.e. when the building really no longer has any value at all. Then the assessor raises the land valuation under the new, or replacement building – making the land tax in effect an additional tax on the new building. The correct method is the “land-first, building-residual” method: value the land as though vacant, and give the old building the excess, if any, of the joint value over the land value. Then the land value remains fixed when a new building arises, and the land tax serves, as it should, as a stimulus to rebuilding (Gaffney, 2001). 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. ...

What determines one's new bottom line is how intensely one uses land.
  • The PTS raises the tax burden on low intensity users of land, such as: slum lords, car dealers, speculators sitting on unused land, mall owners and probably their tenants, and farmers on land near a city's limits, assessed according to potential use, and not granted deferments.
  • On the other hand, owners of homes, condos, apartments, neighborhood-based, pedestrian-friendly businesses, and industrial facilities generally use land intensively. The PTS would save them money, although only slightly for home owners, based on studies of King and Clark Counties, WA (Gihring, 1994, 1996).
  • Agricultural parcels far removed from suburban areas, given very low value, may also come out ahead. ...
The failed policy that the PTS would replace is the present property tax. This is actually two taxes in one, one on land and another on improvements. The tax on improvements penalizes owners for improving. This negative incentive does its greatest damage at the margin, where profit is slim. There, rather than pay a higher tax, owners let buildings dilapidate into slums. The lack of much tax on land keeps overhead on speculators affordable. This negative incentive lets owners under-utilize prime sites, even withhold them from use entirely. Kept from prime sites, development sprawls outward.

Sprawl inflates the values of suburban and rural land. Leap-frog development raises a few spikes in a land value map that soon pull up values everywhere, increasing the property tax burden of owners of previously developed sites, unless the tax is capped. The resultant sprawl also raises enormously the cost of extending infrastructure and makes auto-dependency a given.

The PTS reverses all these negative consequences.
  • Rather than burden construction, taxing only land spares it.
  • Rather than spread development (hooking us on cars), taxing land concentrates it (providing a market for mass transit).
  • Rather than inflate land price, a land tax squashes it.
  • Rather than enrich the owners of prime sites or itself, a land-taxing government could rebate some collected site rent as a dividend, perhaps in the form of a Housing Voucher, making home ownership inflation-proof.
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

Walter Rybeck and Ronald Pasquariello: Combating Modern-day Feudalism: Land as God’s Gift

The immorality of landlordism. An increasingly small elite is taking possession of the nation’s land, enabling them to squeeze more and more from the landless. This is runaway landlordism, and current public policy fuels its progress.

On the federal level, while the wages of ordinary workers find no shelter from the Internal Revenue Service, exemptions and special preferences for landowners whittle down their taxes or turn real estate losses into profits. The 1986 Tax Reform Act aims to reduce these privileges, but landowners’ past ingenuity in avoiding taxation warrants continued vigilance over tax structures. At the local level, the property tax rises for owners who build or improve their homes, rental apartments or commercial buildings, while it is reduced for those who let their land go fallow. Compare the following situation of the Joneses, the Smiths and the Greens.

  • The Joneses have a well-maintained home. The local tax office, seeing that they have has added air conditioning, a recreation room and a new roof, raises their assessment. Never mind that the Joneses improved their neighborhood and generated jobs and business. The result will be higher taxes not only this year, but as long as they keep the house in good condition.
  • The Smiths’ home of the same size and age is an eyesore. The yard is full of junk, gutters are rusted, screens are torn, paint is peeling. The tax office says it is worth less than last year. The Smiths’ taxes are reduced, a "reward" for blighting the community.
  • The Greens do not use their lot at all. They offer no production or housing on it. For wasting the site’s potential, they enjoy the lowest tax bill of the three.

Overtaxing good land use while under-taxing blight and empty lots invites slumlords and encourages land speculators. This type of landlordism -- or modern feudalism -- is an injustice. It allows individual landowners to siphon off the lion’s share of land values....   Read the whole article

Jeff Smith Share Rent, Transform Society
If society decided to share among its members all the annual value of society's sites and resources and air space, what would happen?  ...

The amount of rent has to total some amount. If you ask how much taxes are, you get a figure, or how much wages or interest are, you could get a figure. No one does a good job of keeping track of how much we spend or how much nature we use. In some of the best estimates, Ronald Banks in England estimates that the flow of rent is as great if not more than any of those other flows. Assuming that is true, if not allowed to collect in the wrong pockets, but redirected to everybody's pockets, we can expect a solution. How would you do it?  ...

If you were to choose the Libertarian version, and rely on fees and dividends, you get a geobonus, an added benefit. You would quit distorting prices, you could pull government back in a sense. Now taxes and subsidies at the margin can make housing unaffordable to maintain, so the apartment owner lets his apartment building become dilapidated and causes nearby owners to do the same. He can breed a slum.  ...

What other social relations might change? Increase land ownership participation in community and it benefits community, with town hall meetings and block parties. Those kinds of communities have less crime.  Read the whole article

Jeff Smith: How Profit Shapes Urban Space
Without spending a penny of subsidy, cities can make urban renewal more profitable than suburban development. How is about as commonsensical as Einsteinian physics, but like "e=mc2", it works. The trick is to forget subsidies and lower one tax while raising another. That is, levy a tax or charge a fee to collect land value while eliminating any tax on buildings or improvements.
The present property tax works backwards, like an intruder from the anti-universe. It increases as owners improve their property; it decreases when owners let buildings dilapidate. "Save money, create slums," cities tell owners.
Some owners do keep prime sites covered with parking lots or abandoned buildings while waiting for land values to rise. "Good numbers are hard to come by," notes Bill Batt, former fiscal policy researcher for the New York legislature, "but easily a quarter of a US city is under-utilized." Thus urban cores decay, an entropy that seems natural and inevitable yet is policy-induced. ...   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.

"A survey made by the editors of Fortune found that during the 1950's the population in metropolitan areas increased by about 400,000 persons annually. About 250,000 housing units were built yearly in these areas, but almost the same number were lost by demolition, condemnation or conversion into industrial use. Thus the housing shortage increased by about 400,000 persons each year. The editors of Fortune concluded that the battle against slums will be decided by the simple arithmetic of new buildings versus immigration to the cities." ...

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. ...

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. 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.

To the extent that property taxes discourage residential construction and the improvement and modernization of homes they create unemployment. The housing construction industry employed about 2,200,000 people in 1962, that is about 1.4 persons per housing unit. Any change in the direction of home building employment is multiplied 2.57 times. Thus an increase in housing starts by 50% would give employment to 2.8 million persons. An increase by about 66.6% or by 2/3 would create about 3.6 million jobs. These figures do not take into consideration the investment in public utilities, streets, schools etc., that would be required to service these additional housing units.

Under our property tax system wealthy communities with expensive homes or with heavy concentration of industry will have a large tax basis and low tax rates. Schools will be good and public services will be adequate. Yet in a poor community the tax base will be much smaller, tax rates will be much higher and still it will be found impossible to provide for good schools and adequate public services.

In a pamphlet entitled Paying for better schools the Committee for Economic Development came to the conclusion that "where a child happens to live is likely to be important in determining the quality of his education. In some areas children are taught by meagerly qualified teachers in substandard schools with inadequate equipment. The school session is shorter and the school leaving age is lower than the national average."

A defect of our property tax system that is seldom mentioned is that it puts a premium on obsolescence and penalizes new housing. This is so because property taxes are ad valorem taxes. Every piece of real estate except land is subject to depreciation. Thus the owners of old and obsolete real estate will pay little in taxes, while newly constructed buildings will bear the brunt of the tax.

This characteristic of the property tax is obscured by the rising trends of land values, which in many cases offset the loss in value of the improvement. Increases in tax rates and differences in assessment procedures and practices further hide the fact that ad valorem taxes favor obsolete real property. ...

We have discussed the sharp increase in the level of rents that has taken place during these last years. These increases reflect the steep rise in land values that have taken place in almost all sections of our cities. The tax assessed on the improvements has discouraged the construction of more and better housing. At the same time, the tax assessed on land has been too low to induce owners to sell, improve, or replace their rental properties. Read the whole article

This piece is speaking to rural tenant farmers, but also could be extended to homeownership versus tenancy:

The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath (Ireland): Back to the Land (1881) 

An Open Violation of the Principles of Justice
Under such a state of things one may well ask, is it in human nature that anyone could have the heart or the enterprise to expend his labour and capital on the permanent improvement of the soil exclusively for the benefit of others, and with a certainty that he will be charged an increased rent for the use of his own property?

How can any government allow the land of a nation to remain in the hands of a class of men who will not improve it themselves, or allow others to improve it either? How can any just government suffer any longer a system of Land Tenure which inflicts irreparable ruin on the general industry and prosperity of a nation, and which is maintained solely for the purpose of giving the landlords an opportunity of plundering the class of industrious, improving tenants which it is specially bound to protect and defend? Read the whole letter

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