Bloomberg reports that China has imposed what appears to be a 5% severance fee for coal, oil, and gas in one western province, and will extend it to others. Revenue will be used to fund development projects in the area.
In principle, this is collecting the rent for the benefit of the community. How it will actually work out cannot be known.
Small business sidelined in slow recovery from recession reports the L A Times (via Chicago Tribune). The article clearly states some of the reasons that independent businesses are reluctant to expand. Of course, one is the uncertainty of the economic outlook, which is largely a result of mismanagement of the economy. Another concern is the increasing regulatory thicket, particularly difficult for those too small to make significant lobbying or campaign funding efforts. Impending increases in tax rates are also a problem.
One thing that isn’t a problem is the availability of loans, altho “”In olden days, many of the start-ups got financing by refinancing their homes. That’s gone.”
Beyond that, here’s a classic land speculator as “businessman”
…a small auto dealer in Los Angeles who made most of his money not by selling cars but by frequently refinancing the mortgage on his lot, which until recently kept rising in value.
The article doesn’t say whether this guy’s business was ever viable, or merely helped support the speculation.
Of course, had the land bubble been minimized by public collection of land rent, financing would have had to come from some other source, but less financing would be needed.
None of the businessfolks interviewed in this article are accountants nor attorneys. Probably their revenue is doing pretty well.
Tariffs– fees charged by the U S Government for the import of goods– are designed to protect politically-powerful interests who would otherwise be unable to compete as profitably with foreign producers. So they are regressive in the sense that politically-powerful interests are likely to be relatively wealthy.
But according to this article, tariffs are also regressive in the sense that their direct impact on the poor exceeds that on the wealthy. “Luxury goods have very low tariffs, while cheap clothes, underwear, shoes and household products have much higher rates.” Several examples are cited; I have no idea whether they’re typical. Both the Cato Institute and the Democratic Leadership Council are quoted in support, an official of the former calling tariffs “our most regressive tax that the federal government imposes.”
ICMA (International City/County Managers Association) has published Walt Rybeck’s article about some of the advantages of taxing land value. A good introduction for those generally familiar with local government issues but not with land value tax. Includes link to a video which summarizes the case. Inconveniently, Harrisburg, PA is highlighted as a success for LVT. It is, but other problems have overwhelmed it in recent months.
(And in the process of locating the video link, I found a couple about Walt’s late brother and fellow geoist, “Dental Farmer” Art Rybeck.)
… at Prairie Park in Beecher, courtesy Uncle Sam. And, with the $8,000 credit Uncle also provides, you’ll take out some cash right away!
I guess the target market is folks who can’t save a few thousand dollars for a down payment. Or maybe the purpose is to keep some construction workers employed, builders solvent, and housing finance gangsters profitable. It’s a Department of Agriculture program, thus the houses are remote enough that any big increase in gasoline prices will be a problem. (This DOA site indicates that 50,000 homes will be 100% financed, funded by the American Recovery and Reinvestment Act.)
I thought that, at least for a little while, the authorities would pretend to have learned the lesson, that poor people have better uses for their energy and money than becoming highly-leveraged “homeowners.” Silly me.
Our friends over at the Civic Federation on Monday issued a “Fiscal Rehabilitation Plan for the State of Illinois.” It has a pretty decent summary of where we stand financially, and by what route we got here. The short version of this is, we are in deep doo doo. And in recent years, the doo doo has been spread around in confusing ways, making it harder to trace the problem. But now, no question about it, we have retiree benefit liabilities far beyond the funds available to pay them, debt has been increasing, and programs for the poor are facing increasing burdens with decreasing resources, while tax revenues have been slipping. (The report doesn’t discuss infrastructure needs.)
The report, funded by some of Chicago’s wealthiest foundations, recommends freezing or cutting funds for State programs, reducing pension obligations to the extent possible, raising the personal income tax 67% and corporate tax 33%, and removing a few relatively minor tax breaks. It also suggests that pension income be taxed and that the State move toward taxing consumer services. Despite these tax increases and ongoing national economic difficulty, it pretends that the income and sales tax bases will not decrease.
Of course this is a dumb plan. Frozen or reduced expenditures will be inadequate to meet the State’s needs. Increased rates of tax on productive activity will cause some of that activity to leave Illinois, or simply not to occur. When they see their income become subject to tax, some pensioners will choose to move out of state– and the ones best able to leave are the affluent ones, who pay sales and property tax and don’t so much burden public services.
But the State is in a fiscal hole, so if I don’t like the Civic Federation’s plan shouldn’t I suggest one of my own? Despite the lack of foundation funding, that is what I shall do.
I won’t comment much on the expenditure side. Probably some pension cutbacks are appropriate, and there is surely plenty of fraud and waste in many programs (tho catching it is difficult). Some programs certainly could be eliminated, but the big ones– education, transportation, aid to those unable to work– are necessary in some form. Also, there is an existing debt of about $25 billion, plus $66 billion in unfunded retiree liabilities (for past years). So we need a lot of revenue. How to get it?
What about a land value tax? Now, nobody knows what the land of our State is worth, but we know for sure that it isn’t moving away. It might be $2 trillion. Suppose we were to tax that at, say 1% of value. That’s $20 billion/year, more than the total raised by the State sales, corporate and personal income taxes. That bails us out of the debt in a few years, allowing eventual elimination of these other taxes.
Is it fair? It’s more fair than asking hardworking people to share their salaries with the State, then pay again when they purchase things. (The Illinois sales tax originated, in 1933, as a way to eliminate the real estate tax.) It’s not just fairer, but also smarter, than telling employers and retirees that if they stay in Illinois, the State will take a share, an increasing share, of their income..
I have a special affinity for taxing farmland, because I look at listings like this 210-acre farm where real estate tax is only 1/10th of 1% of value. Others pay even less. It’s quite legal, tax preferences for “farmland” even tho the owners in most cases are investors, not farmers. There are plenty of urban examples, too, some illustrated here.
Although Civic Federation’s recommendations are foolish, I think descriptive portions of the report are pretty good. Two things I learned are, first, that the number of State employees has dropped about 20% in the past decade, and second, that expenditures on “Corrections” are only about $1.1 billion/year. It still would be a good idea to let all the innocent people out of prison, but that’s not going to solve our budget problem. However, if we raise taxes as the Civic Federation suggests, those released, as well as the rest of us, are unlikely to be able to find jobs.
Just happened to find it while searching for something else in a Florida library
The killer argument in favour of a national tax on land values for any modern government relates to the effect of globalisation on the tax base. The ability of companies to shift their operations from one tax jurisdiction to another in a world of increasingly mobile capital means that the corporate tax base is likely to erode. This is taking longer to happen than intuition might suggest, but the logic of capital mobility and of transfer pricing by large corporations makes it inevitable. Rich private individuals are similarly prone to shift residence and domicile to minimise their tax liabilities. But it is much harder to shift factories, offices, shops and houses, and impossible to move the ground on which they are built.
The article also includes a prescient observation regarding the housing bubble
Better still, the effect on the housing market would be inherently countercyclical. When house prices and land values are rising, the tax would admittedly with a delay act as a dampener on the boom.
source: One tax to untangle this unholy mess.(real property taxes).
Estates Gazette (Feb 28, 2004): p.50.
A great little interactive tool compares house price trends to income trends and general price levels for twenty countries. Be warned that it is flash-based. Most series seem to go back to 1990. Relative to incomes, Holland and Belgium show the greatest increases, while the big decliner was Japan. Thanks to Steve Keen for finding it and providing the link, originally from The Economist. And of course we know that house prices mainly represent the cost of land (including the cost of permission to build).
Mason Gaffney, author of After the Crash, interviewed by Kevin Press (part 1 and part 2). Also available as a pdf. Book was reviewed earlier here.
Some Americans may not be aware that U S Citizenship– or at least, lawful permanent residency– has long been for sale, legally and aboveboard. It’s called the EB5 program, and essentially provides that any foreigner “investing” $500,000 to $1 million in a U. S. business can become a legal permanent resident. And, of course, entrepreneurs have found the niche market, setting up businesses in which foreigners may invest, without taking an active role in management of the enterprise.
A Chinese and American joint venture is “converting the dormant Northridge mall in Milwaukee into a regional shopping center featuring merchandise from Chinese retailers” according to Milwaukee Business Journal. Presumably, each of the 200 Chinese retailers expected could support one or more EB5 visas. 300-500 local residents are expected to be hired, tho I think it’s a bit imaginative to suggest that these jobs would be “created” by the project. Rather, like most economic development incentives, they are simply shifted from elsewhere.
A China Daily report on the project indicates that the Chinese investors might not be familiar with primitive North American travel conditions. Milwaukee “is only an hour away from Chicago,” says the developer. Maybe someday.
Of course, the poor would-be immigrant has no similar opportunity. She cannot say “I will work to build a business that will employ Americans,” nor even “I will borrow a half-million dollars to invest,” as the program doesn’t permit this.
So, as existing Americans, are we better off inviting a bunch of rentiers, or a bunch of hardworking laborers? Too many people believe that the latter will drive down American wages– which may appear to be true, only because we fail to consider what the immigrants can produce.
If we insist on inviting rentiers, we have chosen an inefficient way to do it. Instead of requiring $500,000 invested in a business, when plenty of American entrepreneurs are already able to supply capital, we could simply require $500,000 paid toward reduction of the Federal debt.