wealthandwant theme: Magnitude of Rent

Magnitude of Rent

We don't know the full magnitude of land rent! Remarkably, our government collects and publishes a lot of statistics, but doesn't bother measuring land rent!

What we don't measure, we can't learn from — or share the benefits of.

See Michael Hudson's work.

Making up about one-fifth of national income, land value taxation would provide about 60 percent of current U.S. federal, state, and local government revenue, which would be more than adequate for government spending if it did not include transfer payments. The taxable value of the land in the economy would increase over time for two reasons.

First, a shift from taxing production to taxing land values would eliminate the lost output due to taxes — about $1 trillion per year.44 One-fifth of that would be rent, thus increasing rent by $300 billion.

Secondly, the economy would grow faster, which also would increase rent over time.

Tideman et al. (2002, 17) “estimate that the net gain (measured in real dollars of 2000), from shifting as much taxation to land as could be financed by collecting 90% of the land rent, would be $1308 billion or 14% of NDP in 2002 and $4,799 billion or 26.6% of NDP in 2042.” Even if only a fraction of government revenue shifted from the types of taxes we know today to a geo-rent tax, the efficiency gains could be substantial. Some critics simply do not believe these results, without bothering to read them. I have not seen a rebuttal of Tideman’s calculation. ... read the whole document

Note 13: Following is an interesting computation of the cost and loss to the city of Boston of the present mixed system of taxation as compared with the single tax; The computation was made by James R. Carret, Esq., the leading conveyancer of Boston:

Valuation of Boston, May 1, 1892
Land... ... . .. ... .. ... .. $399,170,175
Buildings ... ... ... ... ..$281,109,700
Total assessed value of real estate $680,279,875
Assessed value of personal estate $213,695,829
.... .... ... ... ... ... ... ... .... .... .... ... .... ... $893,975,704
Rate of taxation, $12.90 per $1000
Total tax levy, May 1, 1892 $11,805,036

Amount of taxes levied in respect of the different subjects of taxation and percentages of the same:
Land .... .... .... .... $5,149,295 43.62%
Buildings .... .... .. $3,626,295 30.72%
Personal estate .. $2,756,676 23.35%
Polls ... .... ... .... .... ...272,750 2.31%

But to ascertain the total cost to the people of Boston of the present system of taxation for the taxable year, beginning May 1, 1892, there should be added to the taxes assessed upon them what it cost them to pay the owners of the land of Boston for the use of the land, being the net ground rent, which I estimate at four per cent on the land value.

Total tax levy, May 1, 1892 ... ... ... ... .... .... .... .... .... ..... .... .... .... .... .... .... ..$11,805,036
Net ground rent, four percent, on the land value ($399,170,175)..... ... ... ...$15,966,807
Total cost of the present system to the people of Boston for that year ... $27,771,843

To contrast this with what the single tax system would have cost the people of Boston for that year, take the gross ground rent, found by adding to the net ground rent the taxation on land values for that year, being $12.90 per $1000, or 1.29 per cent added to 4 per cent = 5.29 per cent.

Total cost of present system as above .. .... .... .... .... .... .... .... .... ....$27,771,843
Single tax, or gross ground rent, 5.29 per cent on $399,170,175 ... ..$21,116,102
Excess cost of present system, which is the sum of
taxes in respect of buildings, personal property, and polls .... ...... .. $6,655,741

But the present system not only costs the people more than the single tax would, but produces less revenue:

Proceeds of single tax ... ... ... ... ..... .... .... ..... .... .... .... ..... ..... .... $21,116,102
Present tax levy ... ... ... ... ... .... .... .... ..... .... .... .... .... .... .... .... ....$11,805,036
Loss to public treasury by present system ... .... .... .... .... .. ..... ..$9,311,066

This, however, is not a complete contrast between the present system and the single tax, for large amounts of real estate are exempt from taxation, being held by the United States, the Commonwealth, by the city itself, by religious societies and corporations, and by charitable, literary, and scientific institutions. The total amount of the value of land so held as returned by the assessors for the year 1892 is $60,626,171.

Reasons can be given why all lands within the city should be assessed for taxation to secure a just distribution of the public burdens, which I cannot take the space to enter into here. There is good reason to believe also that lands in the city of Boston are assessed to quite an appreciable extent below their fair market value. As an indication of this see an editorial in the Boston Daily Advertiser for October 3, 1893, under the title, "Their Own Figures."

The vacant lands, marsh lands, and flats in Boston were valued by the assessors in 1892 (page 3 of their annual report) at $52,712,600. I believe that this represents not more than fifty per cent of their true market value.

Taking this and the undervaluation of improved property and the exemptions above mentioned into consideration, I think $500,000,000 to be a fair estimate of the land values of Boston. Making this the basis of contrast, we have:

Proceeds of single tax 5.29 per cent on $500,000,000 ... .... .... .... $26,450,000
Present tax levy ... .... ... .... .... .... .... .... ..... .... .... .... .... ..... .... .... ..$11,805,036
Loss to public treasury by present system ... ... ... ... .... .... .... ....$14,644,974 ... read the book

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

Q2. Would the single tax yield revenue sufficient for all kinds of government?
A. Thomas G. Shearman, Esq., of New York, estimates that sixty-five per cent of the rent that the land in the United States now yields actually and potentially to its owners, would be sufficient. But whether it would or not is as yet an unimportant question. If all revenues ought to be raised from land values, then no revenues should be drawn from other sources while any land value remains in private possession. Until land values are exhausted the taxation of labor cannot be excused. ... read the book

Bill Batt: Comment on Parts of the NYS Legislative Tax Study Commission's 1985 study “Who Pays New York Taxes?”

Henry George’s Solution: Taxing the Flow of Land Rent
If land values are really the present values of anticipated future ground rents, one can certainly treat them as flows rather than stocks, just as community services are continuous flows. The amount of rent flowing through a site and through the economy is not negligible; what estimates have been made, where indeed the economic data allow it to be made, suggest that it is roughly a third of a nation’s GDP.29 The question is whether it makes more sense to. Should we elect to continue property tax regimes as we do, it would make better sense to tax buildings as stocks and lands as rent flows. But this raises the question whether real property should be exempt from all taxes, as some have argued.30 What rationale exists for taxing lands, whether as stocks or flows; and why do we tax buildings? I will argue below that taxing buildings and the failure to adequately tax land both have deleterious consequences for the whole economy.

Little justification exists for taxing buildings, or improvements of any sort, so this question is easily disposed of. The practice is explained largely as a matter of historical inertia. Only in the recent century or two have buildings represented any significant capital value; prior to the rise of major cities, the value of real property lay essentially in land. American cities today typically record aggregate assessed land values – at least when the valuations are well-done – at about 40% to 60% of total taxable value, that is, of land and buildings taken together.31 Skyscrapers reflect enormous capital investment, and this expenditure is warranted because of the enormous value of locational sites. Each site gets its market price from the fact that the total neighborhood context creates an attractive market presence and ambience. By taxing buildings, however, we impose a penalty on their optimum development as well as on the incentives for their maintenance. Moreover, taxes on buildings take away from whatever burden would otherwise be imposed on sites, with the result that incentives for their highest and best use is weakened. Lastly, the technical and administrative challenges of properly assessing the value of improvements is daunting, particularly since they must be depreciated for tax and accounting purposes, evaluated for potential replacement, and so on. In fact most costs associated with administration of property taxation and appeal litigation involve disputes over the valuation of structures, not land values. ... read the whole commentary

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