Tech billionaire wants to solve economic inequality, among other problems, by building a new city funded by land value tax. As described here, alternate source here.
Of course there are all kinds of issues involved in building a new, freestanding city, but it’s encouraging that he wants to start on a sound economic basis. Thanks to Bob Jene and Edward Miller for the tip.
…as to the cause which so suddenly and so largely raised wages in California in 1849, and in Australia in 1852. It was the discovery of the placer mines in unappropriated land to which labor was free that raised the wages of cooks in San Francisco restaurants to $500 a month, and left ships to rot in the harbor without officers or crew until their owners would consent to pay rates that in any other part of the globe seemed fabulous.
…Henry George; Progress & Poverty Book V Chapter 2
George goes on to describe how gold mining was organized, and why it was the form of tenure rather than just the availability of gold that raised wages:
[I]t was by common consent declared that this gold-bearing land should remain common property, of which no one might take more than he could reasonably use, or hold for a longer time than he continued to use it. This perception of natural justice was acquiesced in by the General Government and the Courts, and while placer mining remained of importance, no attempt was made to overrule this reversion to primitive ideas. The title to the land remained in the government, and no individual could acquire more than a possessory claim. The miners in each district fixed the amount of ground an individual could take and the amount of work that must be done to constitute use. If this work were not done, any one could relocate the ground. Thus, no one was allowed to forestall or to lock up natural resources. Labor was acknowledged as the creator of wealth, was given a free field, and secured in its reward.
— Progress & Poverty, Book V, Chapter 2
And now I tripped over a 2002 paper (From Commons to Claims: Property Rights in the California Gold Rush by Andrea G McDowell) that provides a lot of detail and background supporting George’s assertion. A particular mining claim might be 100 to 900 square feet. A miner would work it for a few weeks, then expect to move on to another one. Thus the first miners to arrive had an incentive to avoid land monopoly, because they’d be looking for land again in a short while. “[The miners’] position can be summed up as a rejection of a fee-simple interest in mining claims on the grounds that this would result in the monopoly of the diggings by capitalists and the exclusion of individual miners from the chance to strike it rich.”
There’s a lot about how various mining districts managed their operations — certainly not all the same and often poorly documented, with a lot of the information coming from personal journals and correspondence rather than official sources.
Or more precisely, who owns Santa Clara County? With the cooperation of local officials including the County Assessor, a consortium including the Mercury News has determined who owns the greatest value of real estate in the County. Tech giants Alphabet and Apple are second and third, but the number one owner turns out to be Stanford University.
Some other important information:
Proposition 13 is mentioned, but the incentive which keeps old people in their homes which become unaffordable to most families is not explored.
Local opposition to development, preventing housing construction which might otherwise occur, is discussed.
Stanford’s existing holdings include commercial property, but their current acquisitions seem mainly to provide housing for some of their elite employees. These people are able to buy houses at favorable prices (relative to the area), however Stanford retains the land and retains the right to buy the house back eventually. Local non-Stanford people complain, of course, but do not offer to sell their properties at a discount.
Apparently California practice is to assess all real estate, even that which is exempt. This enables meaningful estimates of ownership even tho $13.3 billion of Stanford’s $19.7 billion in real estate is exempt.
Several local officials were interviewed. They don’t discuss how it feels to know that your opposition, Apple and/or Google, has control of much of your communications and might be monitoring them.
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:
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:
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.
Great story by Hal Dardick in today’s Tribune explaining the real reason the Lincoln Yards TIF had to be Rahm’d thru the City Council before the new Mayor took office. The area just barely qualified as a TIF, and pending new assessments were going to rise enough that it would no longer be eligible. According to the story, it’s uncertain whether the new Mayor could have stopped the project, but she settled for what appear to be minor concessions.
Of course, the whole idea behind TIF’s is that money can be pulled from general revenue into giant slush funds, which the Mayor (and others) can manipulate with little oversight. Meanwhile, there’s little left for routine maintenance, replacement of infrastructure and funding of government schools and other services. Which increases the “need” for TIF’s.
Dardick’s article goes into considerable detail, includes a link to a recent report by Lincoln Institute (no relation to Lincoln Yards, afaik). He does say “land” when I think he means “land + improvements.”
One counterfactual that Dardick doesn’t bother with: What would have happened if Joe Berrios was still Assessor? Would he have nudged down some values to keep the area eligible? Or, to look at it the other way, suppose the current Assessor, who appears to be more conscientious, had been in office since 2013. Perhaps the earlier figures would have been higher, so the increase would be less?
We’ll never know, and it shouldn’t matter. In a well-run city, TIF’s wouldn’t be needed, and a well-informed electorate wouldn’t tolerate them.
We hear that corporate tax rates, at 35% (federal), are too high and need to be reduced so U S companies can be competitive. I remain confident that the best way to fund public services is thru a tax on land value and other measures of privilege, but if any kind of corporate tax is to be retained, here are a few things to consider:
The statutory rate is 35%, but there are all kinds of credits and deductions a corporation can take, so typically the effective rate is much less. Here’s a U S Treasury report (pdf) claiming that effective corporate tax rates were 20% in 2011, the most recent year calculated. Major corporations have the ability to obtain special tax favors. (Just scan thru the tax code (big pdf) to find some of these special favors, available only to individual projects or corporations which reached specific milestones on specific combinations of dates.)
Enterprises in most countries, but not in the United States, have to pay a national value-added or sales tax. The rate and details of course varies by country, but is typically about 19% as indicated by this OECD spreadsheet. Scroll down to the second half of this article to get some more perspective from John Hussman.
Most U S states impose an additional corporate income tax, with varying rates and rules. Illinois takes 9.5%. I have no knowledge about other states nor subnational jurisdications outside the US. However, this table from Deloitte (pdf) provides some detail, including an assertion that the total national+local corporate tax rate in Germany is about 30-33%.
Some commentators complain about “double taxation” of corporate earnings, because corporate dividends are paid out of after-tax earnings. However, incorporation, with its perpetual life and limitation of liability, is a privilege, for which it’s reasonable to expect corporations to pay. I don’t suppose that taxable income is the best measure of the value of this privilege, perhaps a small percentage of total expenditures would be better, but certainly the appropriate fee is greater than zero. Furthermore, a considerable percentage of corporate stock is owned by various kinds of entities which do not pay tax, such as universities and other nonprofits, and Roth IRA’s.
Expanding on a subject covered here nearly six years ago, Tim Novak of the Sun Times writes about assessment deals in Wrigleyville. Actually, not just 32 properties in Wrigleyville, but apparently on 13,984 parcels countywide, each of which reportedly contains commercial use along with at least one, but no more than six, apartments.
Because Cook County taxes residential (and vacant) property at 40% of the rate applicable to commercial property, and because, 17 years ago, the Cook County Board decided to pretend that commercial property containing one to six apartments is residential, taxes on these 32 Wrigley-area properties (and, presumably, on all 13,984 parcels) are only 40% of the amount they would otherwise be. Furthermore, Novak visited some of the properties and found evidence that they don’t contain any apartments at all. Which Assessor Berrios thanked him for reporting.
Novak also visited an auto repair shop across the street from Wrigley, whose owner owes $78,000 in back taxes and claims to fear losing his property. Of course I don’t know the owner’s personal financial situation, but given high land prices in the neighborhood, it seems he could sell his site for a couple million dollars, take the money and buy (or buy land and build) a better facility a mile or two away. Across from Wrigley may have been a good location for car repair in the 1970s, but not so today.
(1) Sun Times needs to sell papers (and attract web traffic) and putting “Wrigley” in the title probably doubles or quadruples the number of people who’d read an article about “tax break.” But the issue is taxes, not commercial baseball.
(2) Once again, let’s be thankful that real estate tax and assessment data is (mostly) accessible to the public. Who knows what kinds of scandals there are on the income tax and sales tax returns filed by the politically-connected property owners, their accountants or attorneys? Unless Wikileaks takes an interest, we’ll never see them.
(3) All this would be solved with a land value tax. Everybody pays the same rate — a big rate — based on the value of their land, exclusive of improvements, and perhaps no other taxes are needed. If there were inequities, the Sun Times — or the Civic Federation — could publish maps making them readily visible.
Many of us have long assumed that a strong demand for labor results in less crime. At least, less of the kind of crime people get imprisoned for. And of course we assume this works most strongly for people at the bottom of the economic ladder, a category which includes most of those released after serving time in prison.
Now we have a study (or more precisely, a report on a study because the original source is behind a paywall) which confirms this assumption. Basically, those released into a strong economy are less likely to return to prison than those released in slack times. Because the study was apparently done at the county level, there would be enough cases that it’s not a statistical artifact. From the abstract:
[B]eing released to a county with higher low-skilled wages significantly decreases the risk of recidivism. The impact of higher wages on recidivism is larger for both black offenders and first-time offenders, and in sectors that report being more willing to hire ex-offenders. These results are robust to individual- and county-level controls…
So, since taxing privilege rather than production is an economic development tool, we can also assert that it is an anti-crime measure.
En route to writing something else, I discovered that the Center for Tax and Budget Accountability published a report last fall suggesting that Illinois might want to impose a severance tax on coal. I was surprised to learn that we didn’t already have such a tax, but encouraged that somebody is looking into it.
The report looks into severance taxes in several coal-producing states, suggesting that Illinois might raise anywhere from $1.6 million to $128.8 million, which might be shared with local governments, used as general revenue, or put into a permanent fund, or some combination. The numbers are pretty modest in the context of a state budget short by $4.6 billion for just the current fiscal year, but that’s no excuse to ignore them.
I did note a couple curious things in the report. On page five it asserts that, since most Illinois coal is consumed in other states, consumers in those states would pay most of the tax. I rather doubt that any consumers would pay it. Rather, since the coal market is national, implementation of a significant severance tax here would just reduce the value of coal deposits, so the tax would be paid by the owners or lessees of coal rights.
Second, there’s no discussion of existing real estate tax as it applies to coal deposits. Per 35 ILCS 200/10-175 it appears that coal rights, if not yet developed, are taxed on a value not to exceed $75/acre, practically a negligible amount. That’s an extremely cheap way for speculators to hold rights waiting for a price increase. But, per 35 ILCS 200/10-180, coal which is actually being mined is assessed much higher, based on its actual economic value as defined in the statute. So there’s already a substantial incentive not to mine the coal. A proper analysis would consider how a severance fee would affect this assessment, both in terms of revenue and incentives to mine or not mine.
Well, then, that would reduce economic activity in the region. On that basis, the University estimates the impact would be $900 million annually. That’s figured by counting staff salaries, student expenditures, capital improvements, and the multiplier effect of each.
But of course this is a phony argument, intended to maintain the flows of tax dollars to the state’s “higher education” system. Let’s just suppose that all government funding of the University stopped. Quite possibly it could remain in operation, as lots of nongovernment schools do. But suppose otherwise. Tomorrow morning we wake up and find that Northern Illinois University is going out of business. And, just to keep the exercise meaningful, suppose none of the other Illinois government schools are able to pick up the slack; maybe they went out of business too, or maybe they just won’t expand.
So now there’s a big campus for sale. Would a nongovernment school want to buy it? Or maybe one or more other organizations, such as a mental hospital, retirement community, corporate think-tank, drug rehabilitation center, penal facility, religious group, will want to buy the space? The campus won’t remain empty. It will be re-used or redeveloped, and that will involve an unknown (but positive) number of jobs and investments.
What about the students? It seems the economic return on college credentials is decreasing, but surely it has some value for some people. There are lots of colleges, public and private, looking for students. Some students will decide to put full-time formal education aside for a time, look for jobs or start businesses. And starting a business might be a good idea, with a labor force suddenly available.
And the faculty? Surely they’re employable, as consultants or teachers elsewhere, or doing something else. If they really can’t do anything but teach at a government school, what necessary skills do they lack?
Meanwhile, we also need to consider the benefit to taxpayers of no longer funding the University. How much would they save? Or, more likely, taxpayers would “save” nothing, but more funds would be available to cover other existing obligations, which does seem to result in some public benefit.
One more thing. This topic was raised by a link in an email I received, labeled “What’s a state university worth to the region in which it’s located?” That’s kind of meaningless; do we mean “to the people living in the region,” or “to the taxpayers of the region,” or “to the owners of land in the region,” or something else? And necessarily, the analysis needs to imagine what would happen in the absence of the university. Do there exist any examples of a significant state university shutting down? I know of none. Perhaps a test is needed. Maybe I shouldn’t be surprised that Cold Spring Shops hasn’t commented on this.