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Tuesday, September 8, 2015

The Target of progressive taxation and LVT is unearned land rents/income

This blog is a follow on to the Posts; Common Property and the Commons and Locke Talked of the Importance of the Collective. It also is one of a series looking at what Henry George actually had to say about taxation, what modern Georgists say about the subject and what non Georgists have taken from the unsound arguments they've picked up from the Georgists!

I run into libertarians who claim to be followers of Henry George. Some talk about the "single tax" as a special property tax that exempts capital investments and helps developers efficiently use property by kicking "speculators" out and preventing farmers from squatting on land that properly should be redeveloped. But Henry George is one of my heroes. He would never be for taking property from old people or the poor. Yet that is what our current property taxes do. So why would anyone want to merely reform property taxes?

How this leads to distortions of what LVT is all about

Worse this apparent confusion about the meaning and purpose of Land value taxes leads to misappropriation and misunderstandings of what the tax is about in Left and Right circles alike:

For example the writer Peter Orzag writing at Bloomberg shares a garbled version of Land Value Taxation ideas in his article: "To Fight inequality Tax Land" [http://www.bloombergview.com/articles/2015-03-03/to-fight-inequality-tax-land]. In that article he notes that the largest increment of wealth increases [he calls them capital increases] takes the form of Land value increases and then referring to Joseph Stiglitz notes that:

"Stiglitz also argues for imposing a land value tax, to directly address this source of increasing wealth inequality. Economists have long favored such a tax, because it does little or nothing to distort incentives: Since land is roughly fixed in supply, there's little one can do to escape a land tax. Indeed, from the perspective of economic efficiency, a land value tax scores higher than even a value-added tax, which is typically seen as the most efficient form of taxation." "Tax Land Article" [fight-inequality-tax-land]]

Stiglitz is either directly or indirectly echoing Henry George here. And knowing how brilliant he is I suspect he's read Henry George at some time and understood him.

Economic Efficiency versus the Efficiency with which wealth can be looted

But in the hands of Peter Orzag LVT becomes about "Economic efficiency," which is "A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency. When an economy is economically efficient, any changes made to assist one person would harm another." I'm not sure what measures Orzag is using for "economic efficiency" but I have to assume he's fine with the kind of economic efficiency where one person's gain is another's loss. He like some other LVT enthusiasts have seem to have no trouble with this, or it's intended consequences such as illustrated in this Washington Post Article from 2013 about the vicissitudes of ordinary Property Taxes:

LVT as a Direct Tax

If that is economic efficiency we are all in trouble. But the notion of LVT as an "efficient Tax on land" isn't just the interpretation of Peter Orzag or hucksters for whom LVT is both a social panacea and a "Single Tax" yet somehow is primarily a tool for efficient land development. I guess if everyone is a renter then the economy is optimized for the rentiers. Many people translate Henry George's "Single Tax" proposal into something like the way Milton Friedman represents it:

“In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago” (Mark Blaug. Economica, New Series, 47, no. 188 [1980] p. 472). Econ Library Bio:[http://www.econlib.org/library/Enc/bios/George.html]

Because of understandings and statements like these, LVT is actually pretty popular in the developer community and they advertize the benefits. For example this page here explicitly touts the benefits of "Land Value Taxation as follows:

Source: Benefits of Land Value Taxation, taken 3/4/2015 [http://www.taxjustice.net/cms/upload/pdf/gen_ben_f_land_tax.pdf]
"LVT would encourage new capital investment rather than sterile land speculation as it would encourage a shift of private investment from land speculation (which creates no extra land but only higher land prices) to productive enterprises. "
"LVT would encourage the use of empty sites zoned for development, creating more job opportunities and wealth. "
"LVT would help avoid urban sprawl. As brown field sites would be developed within towns and cities it would be unnecessary to permit urban sprawl. Compact towns are also more efficient in their use of resources for transport and other services."

But then:

"LVT [cannot] be avoided. (Unlike income tax and business taxes where tax avoidance experts are in great demand and the ‘shadow economy’ flourishes to evade taxes.) Every landowner would be required to register their land and to pay LVT on all their land holdings. With LVT any site with no registered owner would be sold by auction for the benefit of the Government."

But that is not Henry George's Tax!

This sounds good until you realize the ads are targeting the poor, the widow, the laborer, the retiree, all potentially to be dispossessed by LVT when it's used as a tool for development. If they can't avoid the tax, they'll be evicted. Thus too many LVT enthusiasts are offering a bait and switch proposition. They think of LVT as a direct tax. But as my friend;

"All direct taxes on property ownership are abusive and prone to tax tyranny"

And Land Value Taxes are not supposed to be tax tyranny! Indeed all these other BS reasons for LVT are things that Henry George warned about:

"Nothing is to be gained by having the Single Tax advocated for wrong reasons. Men brought over by erroneous arguments can never be relied on in a cause that rests on truth."

Indeed Henry George feared folks advocating LVT for the wrong reasons more than he feared outside enemies:

"The unsound supporter is, in fact, more dangerous than an opponent."

And George was right to fear the consequences of misunderstanding as demonstrated a few short years (1893) after his stroke rendered him weakened:

"Unless he sees that taxes on Land Values or economic rent which is what we mean by the Single Tax must be borne by the owners of the valuable land from which it is collected, and that it cannot fall on users of land as users, and cannot add to the cost of production or increase prices, no one can appreciate the moral side of our argument or the full weight of the fiscal side."

My friend includes wages in the definition of "property", which only makes sense because what makes our 'income tax' so unjust is that it is figured on and taken from Net Incomes that are often far less than the expenses and survival needs of workers -- and is thus equally unfair to what the authorities are doing to property owners in DC, Md & Virginia (and around the country).

Which is why the constitution forbids the Federal Government to levy direct taxes! Moreover, if you are going to levy direct taxes there is no reason to be punishing people for being elderly, poor, or not privileged. As my Friend notes:

"The government could easily have waited till these elderly people passed away, or voluntarily sold their property, before collecting any unearned income gains generated by the parcel, but apparently some vultures wanted the land right away."

Property taxes may be "efficient" but without humanity they are efficiently abusive. The rights we need to enshrine in our law are the rights to "home" and "livelihood" because "efficient taxation" is often a euphemism for ruthless taxation.

Land Value Tax is after unearned rents and gains from speculation

But fortunately for my estimation of Henry George, he didn't actually teach Land Value Taxes as a Direct tax, nor as a property tax. He wanted it to be on "unearned rent." He wanted it to be a tool to protect workers, and producers, the elderly and ordinary families:

As this biography notes that his LVT proposal was found on the reality that:

"rent tends to increase not only with increase of population but with all improvements that increase productive power, Mr. George finds the cause of the well-known tendency to the increase of land values and to the decrease of the proportion of the produce of wealth that goes to labor and capital, while in the speculative holding of land thus engendered he traces the tendency to force wages to a minimum and the primary cause of paroxysms of industrial depression." H. george Bio: [http://www.sfmuseum.net/hist9/hgeorge2.html]

His tax was NOT intended to evict small farmers or householders from farm and livelihood.

"The remedy for these he declares to be the appropriation of rent by the community, thus making land virtually common property, while giving the user secure possession and leaving to the producer the full advantage of his exertion and investment." H. george Bio: [http://www.sfmuseum.net/hist9/hgeorge2.html]

Henry George was after "unearned rents" and was talking about progressive taxation:

"the single tax is NOT a tax on land. It is a tax on what in the terminology of political economy is styled rent---that value, which . . . attaches to SOME land with the growth of population and social development; that premium which the user must pay to the owner as owner in one payment (purchase money) or in annual payments (rent), for permission to use land of superior excellence."

Thus the people that think of LVT as a tool for real estate development or have no regard for labor, or are confused about what Capital is are what Henry George Called "Unsound Followers."

Originally published 3/3/2015

More reading:

Bio of Henry George:
H. george Bio: [http://www.sfmuseum.net/hist9/hgeorge2.html]

And:

H. george Bio: [http://www.sfmuseum.net/hist9/hgeorge2.html]

More on Henry George

Spencer Versus Locke and Henry George [http://holtesthoughts.blogspot.com/2014/11/spencer-versus-locke-henry-george.html]
The Death of Henry George: Rerum Novarum, campaign for Mayor, etc...
Review of article "A Tale of Two Cities": http://holtesthoughts.blogspot.com/2015/06/review-of-tale-of-two-cities.html
More on Locke:
Common Property and the Commons [http://holtesthoughts.blogspot.com/2014/12/common-property-and-commons.html]
Related Articles Locke (and some Henry George References"
Commonwealth according to Locke [http://holtesthoughts.blogspot.com/2014/09/commonwealth-according-to-locke.html]
Locke on the importance of the Collective [http://holtesthoughts.blogspot.com/2014/12/locke-talked-of-importance-of-collective.html]
Progressive Taxation principles and Picketty [http://holtesthoughts.blogspot.com/2014/05/progressive-taxation-principles-and.html]
Postal Banking, Stamp Scripts and fixing our economic system [http://holtesthoughts.blogspot.com/2015/02/postal-banking-stamp-scripts-and-fixing.html]
Scan of the article the HG quotes come from:
Single Tax[http://www.facebook.com/l.php?u=http%3A%2F%2Fwww.cooperativeindividualism.org%2Fgeorge-henry_a-single-tax-on-land-values-1890.html&h=MAQEX8Jxa]
You can see an image here:
And don't forget:
http://www.henrygeorge.org/pcontents.htm

This was originally one slightly rambling long post. I've split it into two.

4 comments:

  1. The single tax only requires that all public revenue come from land owners. It does NOT require that EVERY land owner be required to give 100% of the rental value of their land to the government. If some get exempted, the general EFFECT of liberating society from private land rent (the purpose) WILL yet be achieved.

    The Constitution is a compromise with land speculators. The original US Articles of Confederation established the public revenue system on land values because back then, classical economics was common knowledge.

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  2. Beware of (and fact-check) stories that sound outrageous. The standard procedure for a tax sale is that all proceeds other than back taxes and reasonable charges for conducting the sale go back to the taxpayer who was foreclosed upon. Therefore, if the tax sale returned $197,000 on a $134 debt, the taxpayer would get more than $196,000.

    Also, note that the taxpayer would have had to ignore a lengthy stream of foreclosure notices, and would have to have something wrong with him if he let the property go in a tax sale. Tax sales draw notoriously low bids, meaning that he could have sold the property himself and netted at least $250-300 thousand.

    I also don't know who you have been speaking to, but you have misstated the view of modern Georgists, who note that the margin of free land would rise so that, once the transition had occurred, much land would have a zero or near-zero rent.

    Dan Sullivan, president, Council of Georgist Organizations

    ReplyDelete
    Replies
    1. I have spent a little time investigating the state of mortgages, foreclosure, and sales for tax arrears in this country. And the facts of that story correlate with anecdotal information from around the country. I've watched people get evicted from homes they owed a tiny tax bill on or similar. There are predatory Lawyers backed by predatory courts all over the country. And when someone is unemployed, ill, old, injured, or otherwise in financial stress that is when they strike. This has nothing directly to do with LVT except for talking about "caveats" on the tax and that any tax has to be administered humanely or it becomes an agent of tyranny.
      I haven't mis-stated anything. As usual you didn't bother to read what I actually was writing about, and I'm not confident that this "transition" you talk about has a equilibrium outcome. As to who I'm talking to, you are criticizing me from behind multiple blocks.

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  3. The way that scam worked is in his case the District sold his lien to a private investor who tacked on all sorts of fees and abusive charges to the mortgage before evicting him and selling it at auction that he got nothing. Similar scams involve folks who promise to save you from Bankruptcy and wind up owning your house. I've seen trustees here in Maryland foreclose, buy the property at a discount without an auction, and then resell it.

    ReplyDelete