Archive for the ‘Georgist/geoist’ Category

Land sales price vs. what is paid for land

image credit: Onishenko

image credit: Onishenko

In order to fund community needs from a tax on land value, assessors need to estimate what that land value is.  Conceptually the task need not be difficult (Ted Gwartney outlines some options here, but a more complete and still-valid examination is in this book.) Basically, you look at sales prices for actual land transactions, and make adjustments for parcels which haven’t sold recently or where land comprises only a small part of the value.  But what happens if the buyer pays something additional, “off the books,”  for the land?

According to Peter Katz, that seems to be what often happens. This presentation at APA last March starts off slow (and self-promotional), but moves along thru some interesting territory. Regarding the price of vacant land, he asserts that, in many desirable areas, developers have to first buy (or option) the land, then negotiate with local authorities to get permission to build. Getting that permission might require agreeing to donate money (or land) for public use, or perhaps less savory expenditures, and to the developer this is part of the cost of land. If an area of any size is subject to such constraints, all the land sales are below market prices by the amount of such costs, and all sites, whether sold or not, receive assessed land values that are lower than what developers actually pay to get a buildable site.  This results in less public revenue, implying a need for other taxes, as well as a tendency to develop at lower densities than might be appropriate, when developers choose to settle for existing zoning rather than what they might be able to negotiate. Katz suggests that a formal study of this effect should be done, and nominates Lincoln Institute to make it happen.

Katz’s remedy seems to be a combination of form-based zoning codes, plus a sophisticated (and presumably accurate) fiscal impact analysis that might show denser development to actually be more “profitable” to governments.  But, responding to a question about 65 minutes into (and near the end of) his talk, he acknowledges that funding government from a land value tax would be a good way to obtain the desired development pattern, and that Henry George was a great guy.  His observation that Georgists tend to be wacky has been made before, and I can’t say it’s wrong.

Land value depends on the definition

Image of Drake Hotel by Teemu008 (cc via flickr)

Image of Drake Hotel by Teemu008 (cc via flickr)

In an urban context, absent special environmental issues or legal constraints,  land value and location value are pretty much the same thing.  So we read in Crains that the Drake Hotel is on a 63,000 square foot parcel valued at $150 million, implying this land is worth about $2381/square foot.  But no, the location probably isn’t worth that much.  Rather, the land is leased by the owner of the structure, and the lease document says that, every five years, the land value is to be estimated and the annual rental set at 10% of the land value.

Possibly 10% was a reasonable return in the past, but in today’s zero-interest-rate world no safe investment would yield that much. Rather, the owner of the land actually owns two things: (1) the land, and (2) the privilege of requiring the building owner to pay an above-market rental rate.  Were we to value the land “as vacant,” which is the correct way to estimate land value for taxation purposes, then (2) would disappear and the land would be worth, more or less, the same per square foot as other land in the very prestigious immediate neighborhood.

It would be interesting to see what the lease says specifically about how the land value is to be estimated, and to read the (certainly confidential) document describing how the $150 million value is justified.

For more discussion about methods of valuing land for assessment purposes, duck around for works by Ted Gwartney on the subject, or consult the old but still-relevant TRED volume.

Location remains critical, even as the criteria change

image credit: xeni via flickr (cc)

image credit: xeni via flickr (cc)

The Internet doesn’t make the earth economically flat.  Some locations are still worth many times as much as others.  But technology can affect the criteria for “most valuable site,” as most recently illustrated by the sale of One Wilshire Blvd in Los Angeles for more than twice the price per square foot of a mostly similar office building nearby. It also commands about twice the rent, per square foot.

The difference: One Wilshire is ” the primary terminus for major fiber-optic cable routes between Asia and North America,” and is therefore is a location prized by telecommunications firms.

“You can’t reproduce the connectivity,” said real estate broker Kevin Shannon of CBRE Group Inc. “It’s telecom gold.”

Of course the buyer thinks it’s a fine investment that will only become more valuable in the future.  Presumably the seller thinks different.  The only thing certain is that technology will change, and the pattern of valuable sites will likely be affected.

The taxing question of land value

1_69ffd9a3b25bee3673beaa1ee0190583UK Geoists are crowdsourcing a film about the nature and benefits resulting from a tax on the value of land.  You needn’t be a UK resident nor have a UK charge card in order to support this. Seeking a total of £9000, they’ve already got £2188 with 18 days to go.  Join the 46 funders so far, or find out more, here.

The other downside of export subsidies

Boeing and Airbus products photo by contri via flickr (cc)

Boeing and Airbus products photo by contri via flickr (cc)

Entrenched U S carrier Delta Airlines complains that their foreign competitors can buy Boeing jets cheaper than Delta can. Why? Because the federal Export-Import Bank offers loan guarantees, intended to make Boeing’s products more cost-competitive in the international marketplace, particularly against Airbus.

Of course this is a case where we might be better off allowing the “free market,” whatever that is, to set the cost of financing.  Abolish the ex-im bank, let manufacturers offer subsidized financing from their own resources if they wish, and don’t worry about the “balance” of trade.  But Boeing has sufficient political power that is unlikely.  Perhaps some favors will be offered to Delta, who doubtless also has political friends, in order to get them to drop the suit or minimize its practical impact.

As some indicator of the likely outcome, Influence Explorer says that Delta spent $4,154,382 on lobbying during the most recent reporting period, whereas Boeing spent $24,120,000.

 

“We need an anti-Rentier Campaign” says Michael Lind

image credit: Erick_ckB via flickr (cc)

image credit: Erick_ckB via flickr (cc)

A nice series of three short articles (h/t Gloria Picchetti) in Salon by Michael Lind, explaining the difference between an entrepreneur — who may become wealthy by providing goods and services people want — and a rentier — who seeks to become rich by exacting a toll or tax on productive work.

Lind mentions, in a positive way, the land value tax, and also notes that this isn’t a left/right issue, as labor unions and professional associations can be just as monopolistic as bankers.  The negative effects of “intellectual” “property” are noted, altho Lind seems to think that those who profit from patents are “inventors.” Of course there’s no mention of Henry George, but maybe changing our name to “Institute for the Study and Extirpation of the Useless Rich” would be a helpful step.

Salon describes Michael Lind as author of Land of Promise, for which Amazon carries 15 reader reviews. Not all the reviews are positive, but the criticisms seem to focus on his style and attitude, nobody complaining that his analysis is flawed. Lind is also a “co-founder of the New America Foundation,” whose sources of funding are unclear to me but seem to include rentier George Soros.

The remedies Lind suggests are quite centralized, such as changing federal tax laws, and maintaining financial repression with the object of moving people from private savings to social programs.  Not what I would propose, but what does a geoist in flyover country have to contribute to this discussion?

 

Another report ignores the citizens dividend

marginal rate chart

From C. Eugene Steuerle’s June 27, 2012 statement at http://www.urban.org/UploadedPDF/901508-Marginal-Tax-Rates-Work-and-the-Nations-Real-Tax-System.pdf

I’ve written before about the wild effects of graduated taxes and means-tested benefits which can dump low-income workers into effective tax brackets in excess of 100%.  That is, once the effects on eligibility for earned income tax credit, child tax credit, medicaid, SNAP (food stamps), subsidized housing, and so forth are taken into account, an extra $1000 of income can easily cost more than that amount in increased taxes plus reduced benefits.  (Worse, most low-income people don’t have professional accountants who keep track of this, and so they don’t know in advance what the effects of getting a raise, or taking some overtime, might be.)

This is hardly original with me, and most recently the Congressional Budget Office has issued a report on the subject, summarized here by Evan Soltas of  Bloomberg. What can be done to fix this?  Not much, conclude most writers including Soltas.  We need tax revenue, we need to target aid to those with the greatest need, we can’t expect the rich to pay everything (since they have the lobbyists, lawyers and accountants to limit the taxes they pay.)

None of the writers who get attention seem to consider the citizens dividend. The basic idea is that government collects all the land rent — that is, the effective rental value of private control of natural resources — and share it with all citizens, everyone getting an equal share. It’s done on a small scale in several jurisdictions, including Alaska where each state resident gets a thousand dollars or so, each year, as a share of investments funded by mineral resources.  Of course, natural resources include not only oil, gas, and ore, but also the electromagnetic spectrum, agricultural land, forests, and much of the value of land sites (except of course those which have no market value.)  Suppose this rental value, or just a substantial part of it, were collected by the federal government and distributed, equally, to every U S citizen (maybe legal permanent residents should get a share also). How much would that be?  Would it be enough to pretty much replace most means-tested programs?  Wouldn’t that solve our problem?

Of course, arguments for collecting economic rent go far beyond fixing the screwed-up incentives of means-tested programs and graduated income taxes,  (visit a Henry George School or the Henry George Institute to learn more), but let’s not forget this benefit.

And by the way, it isn’t only the poor who can face these >100% marginal rates.  I wrote before about how certain Cook County homeowners with incomes in the $75,000 – $100,000 could face such rates; I don’t know whether these limits remain in effect. More broadly, it seems that affluent Americans subject to Medicare face a similar situation: As explained here, should your “modified adjusted gross income” amount to $107,001, then your Medicare cost will be $754.80 more than if your income had been only $107,000.  The effective tax rate on that particular dollar is 75,480%.  (Of course if you have a really alert accountant keeping track of all your financial affairs, she will alert you and find a way to avoid that extra dollar. And that accountant knows that the rates quoted above are for 2011 income, at least I think they are, and different limits will be in effect for the current year.)

 

Are subsidies driving Chicago land prices back up?

Image linked from the Crain’s article

Of course they are, but it’s convenient to see it illustrated as Crains Chicago Real Estate Daily explains.

The proposal seems to be for Pam Gleichman and Karl Norberg to sell their 4.9 acre parcel (the Tribune story says 3.67 acres) near McCormick Place, in pieces, for a total of $195 million, which works out to something over $900/square foot, a level which I don’t recall seeing so distant from the loop.  We also learn from Crains that $90 million in TIF (real estate tax) money will be sought to help pay for these developments.  And of course the entire McCormick Place complex benefits from the 1% tax which all restaurant patrons in the central portion of Chicago (as far north as Diversey and as far west as Ashland) pay, not to mention the basic urban services, such as fire protection, transit, and streets, which are funded from other taxes.  We’re all paying so Gleichman and Norberg can get their $195 million. It’s only slightly comforting to realize that their venture is in bankruptcy, and the only reason we get to see these details is because they’re part of a court filing.  But it seems that, if everything works out as they claim, they’ll get to keep a large portion of this money.

Just for fun, we can consider what would have happened under a land value tax.  If the land was taxed at something approaching its full economic rent, it would likely already be developed pretty fully because nobody could profit by holding it underused.  There would likely be no bankruptcy because nobody would have loaned money on land with a modest selling price.

Public Revenue Education Council helps state officials learn about smart tax policies

What’s this? No posts for a month? Actually had several things “almost ready” to post, but meanwhile I spent an interesting three days at the National Council of State Legislators’ “Legislative Summit,” what most of us would call their annual convention.

Since about 1996, the Public Revenue Education Council (Missouri chapter of Common Ground — USA) has staffed a booth at the NCSL conference exhibit hall, alerting legislators, their staffs, and other attendees to the existence of a tax option which generates revenue while increasing, rather than discouraging, productive economic activity.  Honing the message over the years (and gaining seniority which allows choice of better locations within the exhibit hall), PREC President Al Katzenberger and his colleagues may have gained some ground.

al and the scale

Al explains the economy to a visitor (All photos: Chuck Metalitz for the Henry George School)

Among Al’s innovations is a custom-made (and unpatented, as far as I know) three-tray scale, used to illustrate the factors of production.  Land, labor, and capital (the trays) are all necessary for most production, and usually use money (the chains) to facilitate the process.  Banks and other financial institutions (the arms holding the chains) may try to manipulate the system unfairly, and it’s the job of government (the central post) to keep things more or less in balance.

For the 2012 event, which concluded Aug 9,  Al was assisted by Don Killoren of St. Louis, Irene Marmi of Chicago, and this blogger. Since two people are generally enough to staff the booth, each of us had time to wander the hall visiting with other exhibitors– and there were many (a list is here).  Why so many?  As has been said: “No one’s liberty or property is safe while the legislature is in session,” so everyone wants legislators to do, or refrain from doing, something.  Some exhibitors were interesting, and might be the subject of future posts.

Of course each of us has a slightly different view of what geoists want to accomplish, but we tried to present a unified message: “If you tax jobs, retail sales, and buildings, you’re likely to get less of those.  If you tax the value of land as vacant, you’ll get economic benefits and, hey, let me tell you about much nicer your community will look.”

Legislators can be a tough audience, but Al seems to hold this one’s attention

Few people might stop by a booth about public revenue, so Al and Don just call out to passers-by “Where are you from?”  They reply, and Al or Don says “Oh, you could use this there.” But they’ve also learned (better than I) to just shut up and listen to each prospect, find out what their concerns are, and provide a helpful response.

Irene on duty, while Don scans for passing prospects

Thinking about next year’s NCSL conference (in Atlanta), we might want to seek a cleaner look by having fewer documents on the table.  Plastic racks would be suitable for some of them.  Others would be “under the counter,” or perhaps even available only on request via email.  People will put their business cards in a fish bowl if a prize is offered.  What prize? Maybe a $50 RSF gift certificate, along with some suggestions about what to spend it on.  Use the business cards to generate an email list.  Three days after the conference, everybody gets a “Thank you and call us if we can help” message.  If they don’t respond, they won’t hear from us again until a week  before the 2014 (Minnesota) conference, when we invite them to stop by our booth.

We need an attention-getting colorful postcard-size piece, highlighting our special web address which we’ll set up for the occasion, and perhaps a phone number. To the extent possible, the look of the documents we distribute should be modernized and made consistent.  The Revenue Source is Under Our Feet seriously needs updating, and must include contacts for (not necessarily in) every state.

Across from the PREC booth was ESRI, the dominant geographic information systems software provider, who almost certainly were behind the Greenwich land value map we used to illustrate how straightforward land value assessment is.  They suggested some contacts and ideas which may aid geoists in the future.

 

Why isn’t this the geoists’ slogan?

source: Chicago Pedestrian Safety Campaign

It’s all about the rent.  Once you understand what it is and how it works, you’ll look for it and see it everywhere.  You’ll know the fundamental cause of unemployment, low wages, economic stagnation, and poverty.  The cause that makes possible most of the other corruption and theft that plague our nation.

The slogan came from a local campaign to reduce pedestrian deaths, certainly a worthy cause and one that got some funding and creative minds.  But we should have thought of it first.