Posts Tagged ‘taxes’

Putting government pension costs into perspective

Wirepoints recently issued a helpful report showing state and local government pension debt per Chicago household.  They estimate the burden at $144,000 per household.  This is a big number, but one could suppose that a prosperous household, over decades, could bear such a burden.  Some could, but probably not those below poverty level.  Take them out of the picture and the per household amount rises to $172,000.  Excluding households with incomes below $75,000, or below $200,000, and the per-household amount rises further, to $393,000 and $2,022,000 respectively.

Here’s their chart: pension debt chart

Of course this doesn’t consider land values, nor businesses.  If prime Chicago land is worth $1,000/sq ft, that’s 5.38 sq miles.  But more typical land value is much less, probably no more than $25/sq ft. (it seems that nobody has tried to estimate citywide values). That would be 112 square miles.  Once we subtract land owned by governments, churches and other exempt nonprofits, we might be approaching the total value of all land in Chicago. And that’s just for pensions, not bonded debt, nor needed capital improvements.  Real estate buyers know, or certainly should know, about these encumbrances.

Of course money can be raised from business taxes, but that’s hardly a way to grow economic opportunity for Chicagoans. I would consider any tax revenue from “gaming” as a kind of business tax.

The lesson Wirepoints draws from this is that pensions have to be downsized somehow, which required amending the state constitution.  And they go further, comparing government salaries to those of the private sector:

some local gov't salaries compared to average workers

So it looks like we’re going to have to confront a large number of people with guns and firehoses and control over our children, who have been getting a lot of money from us for years and may prefer not to moderate their demands.

Tho I don’t know how, this problem will be solved. Maybe MMT will yield a continuing stream of funds to bail us out.  Maybe inflation will accelerate such that the fixed 3% compounded pension increase isn’t a burden.  Maybe Chicagoans will decide that they just don’t want so many government “services.”  Maybe politicians will decide to remove all taxes from productive economic activity, taxing only the value of land and other privileges (such as the private monopoly over street parking fees), which will grow the economy (while reducing the need for emergency services) sufficient to make pensions a non-issue.

And when it is solved, those who own land and other privileges will benefit most.

Why trust corrupt governments to honestly administer a land value tax?

bar chart of what folks say they're afraid of

source: Chapman University Survey of American Fears

I don’t know that governments are always and inevitably corrupt, but there sure seems to be a lot of corruption going on.  It isn’t a new development; maybe it’s worse nowadays or maybe just more visible.

So how can we single taxers say that we want the government to collect all, or nearly all, of the economic rent? Don’t we know that it will be stolen or, at best, wasted?

Not necessarily.  Consider the following:

In the U S at least, real estate tax is administered and collected at the local — that is, substate– level. This is where the records and expertise needed to operate a land value tax exist.

Unlike income tax or sales tax, nearly all the data involved in real estate taxation is public information.   Most of this data is accessible to everyone with internet access, generally without fee. I can see how much real estate tax my neighbor paid.  I cannot see how much income tax they paid. The same goes for sales taxes and most other kinds of taxes. So cheating in real estate tax can be seen.  That doesn’t mean it will always be impossible for people to cheat, but it provides a much greater possibility that cheating will be observed and rectified.

Government corruption seems to be a function of government size.  A survey earlier this year found that “87% of voters nationwide believe corruption is widespread in the federal government. Solid majorities believe there is also corruption in state (70%) and local (57%) government.”  Looked at the other way round, only 13% of us believe the federal government is possibly honest, compared to 30% for states and 43% for localities.  I actually believe that one of the local governments to whom I pay taxes is pretty honest and efficient.

State and federal governments might logically collect some of the economic rent.  Examples currently include severance taxes and could reasonably include rents for electromagnetic spectrum should our rulers become persuaded to levy and collect them. Existing federal agencies are able to review and evaluate collection efforts.

 

In Japan, folks know that houses depreciate

image credit: insho impression CC BY-ND 2.0

According to this post, Japanese don’t expect the value of their houses to grow.  It seems that they routinely recognize the house and land as separate purchases, and after a few decades the house might have no value at all.  The inference is that land value also might not increase, but at least is unlikely to drop much. (Of course the same trends in value occur in the U S, but we tend not to recognize it.)

As a result, empty-nesters in Japan don’t count on funding their retirements by selling their houses.  As noted in the comments, this also means that housing in Japan is much more affordable than in North America.

Another post by the same writers observes that vacant land in Japan is subject to very high taxes — six times the rate for land with structures.  So landowners are reluctant to demolish worthless houses.  The result is over 13% of houses (as of 2013) were vacant, many of them deteriorated and uninhabitable.    (This article asserts that Japan had 8.5 million “abandoned homes” in 2018, but provides no source and doesn’t define “abandoned.”  This table from the Japan Statistics Bureau reports 8,764,400 vacant dwellings, 14% of Japan’s housing. Most are “for sale” or “for rent.” )

14% seems like a lot, but the equivalent U S rate is 12.2% (according to the press release here which might soon be memory-holed in favor of an update.)

 

What the Tribune missed

iTax Dodge protest

image from Michael Casey via flickr (cc)

Last year the remnant of the Chicago Tribune requested ideas for elements of a new “Plan of Chicago.” They even posted a few of the responses on their site. I suppose some were included in the hardcopy newspaper too.  But those don’t seem to have included my submission, so I probably ought to post it here.

My proposal, of course, relates to how public revenue is raised.  The protesters pictured on the right probably wouldn’t realize that it relates to their concerns, and would almost certainly cause Apple to make a greater contribution to local coffers than they do now. But it wouldn’t increase any corporate tax rate nor prevent Apple from playing accounting games.  It doesn’t need to.

Here’s the proposal as submitted on October 24 2013: (more…)

Update on Consumer Taxes

The Civic Federation has updated their compilation of Chicago consumer taxes, noted last year.  This includes the additional 1/4% RTA sales tax effective April 1, but not the Cook County sales tax increase going into effect later.

Ricardo's Law: The Video

Fred Harrison now has a youtube video version of his Ricardo’s Law, which explains how a “progressive” income tax actually traps the poor and benefits the rich. Mairead Sullivan, Ben Kettlewell, Ross Ashcroft, Ben Holland, and Megan Campbell are also credited on the project.

If you only have 8 minutes to spend learning about this stuff, or as an introduction, the video is recommended.

update Feb 26: The youtube link is changed above.  Also there is an alternative link.