An informed review by political economist Ed Dodson of Tim Howard’s new book about the collapse of Fannie Mae. The senior people understood that they were in trouble due to politics and ideology, and they saw the collapse of underwriting standards, but most had no interest in addressing the fundamental cause.
Melissa Kite had a piece in Thursday’s Guardian complaining about the escalating cost of London housing. She starts off well, observing that she can’t earn as much in a year as the increase in the value of her flat. “[W]hat does it say about our society when we can, in theory at least, make more money doing nothing than we can by the sweat of our brow?” Agreed, it’s a problem. So what does she recommend?
In New York, 45% of people live in rent-stabilised accommodation where landlords are limited to increasing rates by a certain percentage each year. This is not rent control – which accounts for only 1% of tenants – but rent with controlled increases, an important difference.
I will wait to hear from New Yorkers about how this has solved their housing problem. Going back to the Guardian article, Kite gets pretty close when she observes that “a British company is selling a flat-pack self-assembly ‘house in a box.’ But she doesn’t take the next step to ask: “If you buy one, where are you going to place it?” The answer, of course, will be that anyone who can afford only the flat-pack house will be unable to obtain a suitable site anywhere near London.
The problem isn’t house costs, it’s land costs. And land costs would be a lot lower if all land was subject to a stiff site value tax, because there could be little or no speculative premium. (To be clear, the cost of obtaining a site for your house, purchase financing plus tax, would be much less if landholders weren’t pricing sites based on their future hopes rather than current usefulness.) This point is readily made, for example here and here. It’s unfortunate that the writer of the Guardian article seems unfamiliar with the concept.
If the earth belongs to the people, then whatever is paid for the use thereof belongs to them in some equitable fashion also. Therefore, beyond what’s needed for legitimate government purposes, there would seem to be enough for a considerable “citizen’s dividend” for everyone. Plenty of discussion on this subject can be found here.
My guess is that it would likely be enough to replace most of the aid programs which provide funds — rarely enough but maybe better than nothing — to low income people. One advantage is that it could be administered at relatively modest expense. A related advantage is that it can probably be made to work, with everyone getting what they’re entitled to. This latter aspect is what came to mind when I read this NY Times article, in which a Georgetown law professor summarizes “a litany of automation and contracting meltdowns” whereby the poor were unable to obtain benefits to which they were entitled under various aid programs and which may have been essential to their support.
His point seems to be that, while healthcare.gov suffered major problems initially, it was soon repaired because its failure affected many non-poor people. (I have no idea how well-repaired it might be, but will assume he is correct about this.) He does not mention the citizens dividend, perhaps is unaware of it, or maybe ignores it because it would likely reduce the demand for lawyers. But he makes the case. A regular check for everyone, as a just entitlement, would be a far simpler system than most of the means-tested (and otherwise-restricted) aid programs which cost taxpayers so much money.
And while we’re on the subject of means-tested programs, consider this:
[I]f a single mother has two children in childcare and she’s making $36,000, she’ll pay about $310 a month for childcare. Then, if she gets a raise to $37,000, she’ll need to pay $1,200 a month for childcare because of the loss of a subsidy.
Of course, it needn’t be a raise, it might just be a decision to work a bit of overtime. I have written about this before and I will probably have to write about it again. Means-tested aid is a disgrace.
Writing in Standard Digital, Charles Kanjama proposes that “If government was clever, it would include a value-capture approach in project financing.” He’s writing about big infrastructure projects, which in his time (2014) and place (Kenya) include railway and port improvements. He suggests that perhaps half the cost should come from land value tax, without explaining why it would be appropriate for landowners to receive half the benefit of improvements paid for by the general community. (Kanjama is an attorney and accountant who was rated among the top 100 legal minds in Kenya as well as one of the 100 most influential people in that country.)
The same edition (January 4 2014) carries another article showing a problem resulting from failure of the community to collect all the rent. It seems that the government wanted to remove a large number of squatters who had settled in a protected forest. Ordered to vacate, they each received 400,000 shillings ($4604.67 US, according to Wolfram Alpha) to purchase land elsewhere. Now the time for relocation has expired, and many spent the money on things other than land. Of course I don’t know these people, don’t know what land was available, don’t know their needs, but very clearly if land were nearly free (as results from a high land value tax) they would almost certainly be better off.
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.)
When I see the same theme coming from two different sources, I think there’s a trend (tho maybe it just means I wasn’t paying attention). And so we heard Meredith Whitney a few days back describing the developing divide of local and state governments, between those that are solvent (and can attract mobile, affluent residents and investors) and those spiralling down the debt hole. Now Al Lewis looks at it from the retail side– nobody wants to invest where the mundanes live, but as areas like Silicon Valley and Washington continue to prosper retail facilities are renewed and enlarged.
In a democracy of educated, thinking citizens, any state finding itself on the wrong side of this divide could reverse its decline simply by removing all taxes on wages, capital, purchases, and transactions in general, substituting a very heavy tax on land value (which ideally would include the value of mortgages on land, to be paid by the mortgage lender rather than the borrower). Unfortunately, the “investors” who control much of the land in declining areas have the resources to fool the electorate, or can work directly with elected officials to prevent effective reform.
Longtime HGS supporter Joseph Bast, head of the Heartland Institute, has a new policy brief (pdf), with a podcast overview, recommending that fans of professional “sports” own the teams thru nonprofit corporations. The only actual example of this is the Green Bay Packers, which originated as a for-profit organization but was bought out of bankruptcy by a fan-organized nonprofit. They would never leave Green Bay since the owners cannot profit by moving them. Thus the main lever used by for-profit teams to extort new stadiums and other favors would be broken.
Pointing out that teams currently extract monopoly rents from the community, Bast mentions Henry George but rejects George’s idea that natural monopolies should be municipally-owned. Of course, George never applied this concept to professional “sports,” which existed in his day but was nothing like what we see now. The closest I can think of is that George considered the idea of a publicly-subsidized theater to be so absurd, that he compared it to subsidy of various other industries to illustrate the absurdity of the latter.
So why don’t fans establish nonprofit teams? My personal theory is that most fans of professional “sports” are masochists and like to be abused. But perhaps I’m wrong. Bast suggests routes around other barriers including opposition of major leagues, high cost of setting up a team, and existing taxpayer-subsidized facilities which are controlled by existing monopolies.
Chicago Park District’s new harbor at 31st street reportedly cost $103 million and can accommodate 1000 boats. “Rates for the new harbor range from about $3,780 for a 35-foot slip to more than $10,000 for the longest slips of 70 feet and more, excluding taxes and a 25 percent nonresident surcharge.”
One could imagine that these figures might actually cover debt service, maintenance, and the economic rent of the lakefront location. But there’s no such indication in the Park District’s 2011-15 Capital Improvement Plan, which lists funding and projects, but makes little effort to tie the two together so there’s no indication of how much any project costs nor how it’s paid for. Nothing in the latest posted (2010) Comprehensive Annual Financial Report, either.
But in the process of browsing the District’s web site, I did discover that I would be violating their regulations if, without a permit, I post on this web site a photo that I took on Park District property.
The Public Building Commission has some information on their web site, including some contracts and many construction photos. Can’t wade thru all of the former, but they appear not to include any information on how the project is funded.
Much like Korea, Japan, and other advanced countries, Taiwan has a land value tax which requires it to monitor land value regularly. And they do, apparently pretty well, as indicated by this report that 2011 land values average 8.65% over the previous year. The land value tax could be one of the reasons Taiwan seems to be more prosperous than most countries, but that isn’t my point.
My point is that assessing land value is not exceedingly difficult, if one has competent and reasonably honest assessors. The most valuable land in Taiwan is reportedly under the Shin Kong Life Tower, NT$1.21 million per square meter (about $4,000 per square foot, a figure probably never seen in Chicago).
Thanks to the Facebook LVT group for the link.
David Bernstein and Noah Isackson have a pretty good article in Chicago Magazine, Gangs and Politicians in Chicago: An Unholy Alliance. Focusing mainly on Alderman but also including State and Federal legislators, they assert that “gangs” provide the money, votes, and workers that enable officials to attain and retain their office. In exchange, the governments these legislators control provide funds and favors.
Isackson and Bernstein stop short of suggesting how to repair this problem, but reading thru the article it’s clear that the main way these “gangs” prosper is thru unauthorized distribution of drugs. And one of the main favors aldermen provide is assistance in avoiding “law enforcement” efforts to arrest them. End the drug prohibition, most of the “gangs'” income will end, and candidates will no longer get “gang” money. They’ll have to rely on crooked lawyers, lobbyists, etc.
Some of the drug money, of course, has gone into real estate, with “gang” members able to get favors such as rezoning and inspection waivers. A land value tax, by constraining real estate speculation, would be of assistance here.