Stumbling onto another land value tax endorsement

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.

Housing cost trends around the world

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).

Crash recovery manual

After the Crash: Designing a Depression-Free Economy.  By Mason Gaffney, edited and with an intro by Cliff Cobb. Published by Robert Schalkenbach Foundation, 2009.

From time to time, a Georgist will suggest to me that one or another politician or academic, who seems sympathetic but ignorant about economics, should be given a copy of Progress & Poverty.  I usually reply that such persons are too famous and wise to be influenced by new ideas or logical analysis.  But now I might propose that, if one is serious about promoting wise economic policy, one might make the investment to give such a distinguished person After the Crash.

Georgists know that the crash could have been avoided by a simple policy of taxing privilege, not production.  But here we are, in a real economy which is doing poorly.  Mason Gaffney explains how we got here, and what needs to be done to get us out. Everyone who wants to understand the situation should read this book.  It is as long as it needs to be– a bit over 200 pages– and doesn’t seem to be available on the free Internet, so unfortunately some of the most vocal advocates won’t read it. Wealthy institutions– Lincoln, Cato, New America, EPI, etc.– could do no better service than to buy whatever rights are necessary to make it widely available.

Although it is listed on Amazon, Schalkenbach seems to offer a much better price.

Here are what appear to be the main points.

1. Speculation in land titles, and other types of privilege, was the main cause of the crash.  It was made more severe because banks and similar institutions financed it liberally.

2. For a job-rich recovery, we need to recognize that some types of capital investment create a lot more jobs than others. The best type of investment for this purpose turns over rapidly. Compare the number of jobs generated by a major infrastructure project— high speed rail, for instance— with the same amount of money invested by small scale businesses in working capital for inventory and payroll. Done properly, this analysis needs to cover the entire time period while the infrastructure project is amortized.

3. Current government policy at all levels focuses mainly on big projects that generate few jobs per million dollars invested.  This involves not only direct government investment, but tax laws and other practices that favor these kinds of investments.  One reason for this is that the beneficiaries– banks and monopolies– have the resources to lobby effectively.

4. Wise policy is to eliminate such programs, but not to create new ones subsidizing job-creating investments.  Rather, if we just let the market function, without taxing labor to subsidize the privileged, the recovery will be faster, broader, and more stable.

5. The “property” (real estate) tax has much better economic effects than income taxes or consumption taxes.  Even though it penalizes building construction, the effect is to channel more investment away from job-poor and into job-rich forms.

6. Banks have repeatedly got into trouble by lending on real estate, with the current crash only the most recent example.  Wise policy would insist that banks make mainly “self-liquidating” loans, such as for inventory or accounts receivable, and require that real estate purchasers provide hefty equity.

There is much much more in this book, and I started to write a much longer review, but will not complete it because no one (including me) would have the stamina to read it.  I will post some pieces of it later. Meanwhile, if you are concerned about our economic future, you should read this book.

Georgist History

Thanks to Bob Jene of the Better Cities Committee of Illinois for discovering the Henry George Historical Society of San Francisco. And thanks to Mary Lois Timbes for blogging at Finding Fairhope, and particularly for notice of a new book about one of Fairhope’s most distinguished. Browsing around her blog, it turns out that Timbes has written her own book about Fairhope, too.

Government land ownership vs. community collection of land rent

Bloomberg’s report on land taken for the new Shanghai Disneyland tells us something about how people may fare under government ownership of land. One retailer, whose land was taken last year for an unspecified project, still hasn’t gotten compensation:

“All I care now is how much compensation we will end up getting after layers and layers of government officials get their share,”

I don’t see why Disney should get government help in assembling land for their project– it’s not infrastructure–, tho such assistance is routinely provided in the US too. Under a geoist system, where the community collects the land rent and uses it to fund governmental services, landowners would have strong incentive to sell and little incentive to hold out.  Disney could buy land cheaply but would pay substantial rent (in the form of land tax) to retain it. Those relocating could buy land cheaply elsewhere, and if in a less desirable location would find their land tax reduced.  Folks would also, of course, have no other taxes to pay and would receive a share of the rent collected in excess of governmental needs.

Walkability pays

Lots of folks like to live at relatively high densities.  Though a big house and yard are nice, they prefer easy access to facilities and services. That’s why land prices are usually high in densely-developed areas (One might say that high price is the market’s way of maintaining  density).

None of this is news to Georgists or observant urbanites, but it’s nice to note that it’s been documented that “walkability raises home values in U. S. cities.” How much? Well, computing a “walkability score” based strictly on proximity to 13 different services (apparently with no consideration of whether there are maintained sidewalks or paths), in Chicago each one point increase (equivalent to one percent of the total range) increases residential land value by $5260.  This incidentally is the highest amount for any of the 15 cities studied

Public transportation is not directly recognized in this study, altho it is acknowledged that walkability is somewhat correlated with transit service.  Therefore part of this value may be due to transit.

The walkability study is among many interesting resources identified in VTPI‘s new compilation and analysis “Where We Want to Be: Home Location Preferences and their Implications for Smart Growth (pdf). “

Mongolia plans Citizens’ Dividend

Mongolia Fund to Manage $30 Billion Mining Jackpot

Sept. 11 (Bloomberg) — The Mongolian government will set up a sovereign wealth fund using mining royalties and tax revenue, and distribute part of the income to citizens to alleviate poverty, said Finance Minister Sangajav Bayartsogt.

The fund, to be run by professional managers from 2013, will disburse part of its annual income to every Mongolian…

Currently,  per capita income is estimated at $1680/year for the 2.7 million Mongolians.  A single large mining project is expected to generate $30 billion in tax revenue over 50 years. Apparently this estimate includes royalties.  Distribution of “mining wealth” to the people had been an issue in May’s elections.

Less encouraging:

Mongolia’s government on Aug. 25 passed laws allowing companies to carry forward their losses for eight years, build private roads and let Oyu Tolgoi developers use water they find on their land. The parliament will also repeal from Jan. 1, 2011, a 68 percent windfall profit tax on copper and gold.

Land speculation in Khartoum

Georgists will not be surprised that the Sudanese capital of Khartoum suffers from land speculation.  A perceptive article in the Sudan Tribune notes that downtown building lots go for $500,000 to $2 million USD. “The rents in Khartoum have also increased due to huge demand from the oil companies and UN agencies…”  Another source of speculative increase:

The Bank of Khartoum recently initiated the first mortgage policy in the history of Sudan and they announced that their customers could buy, through the bank’s policy, a house or an apartment and pay in installments over a period of 15 years.

Although he doesn’t draw the direct link between speculation and finance, Ahmed Elzobier’s article notes that “land speculation is, at best, a high-risk, high-return investment. At its worst, it is the playground of scam artists and rife with high-level corruption.”

Henry George’s analysis is brought in thru a Progress Report of Fred Foldvary. However, Elzobier does not mention George’s remedy, the taxation of land value.  Instead, he suggests that Mozambique “has the best land policy in Africa. According to the country’s 1997 Land Law, land in Mozambique is still owned by the state and cannot be bought or sold, but the rights of people or communities to use the land, and sell assets on it, are recognized.”  Being truly ignorant about Mozambique, I wonder how well this works.

Although the Sudan Tribune site claims to allow comments, I could not figure out how to make this function work, so I cannot comment on the story.

Maybe Georgists need more pretense

From Felix Salmon:

it wasn’t an excess of greed and speculation which led to the financial crisis, but rather an excess of overcaution, with an attendant surge in demand for triple-A-rated bonds. Investors didn’t want risk, and investment banks made billions of dollars, during the boom, by waving their magic securitization wands and seemingly making that risk disappear.

And that might be the biggest obstacle to effective reform.  Folks want to pretend that there is a system of public finance under which no one (except a few disliked rich or profligate people) will ever risk losing anything. Everyone’s savings will always be protected.  No one will ever be unable to afford to stay in her home. All needed medical care will always be provided at a reasonable (or no) charge. Successful politicians pretend that this can be achieved, with just a few new laws and/or taxes.

Then here come the Georgists, or other rational reformers, saying “we have a system that will work really well, people will be rewarded for doing productive work and won’t be able to live off others.”  What? I won’t be able to count on using equity in my land to fund my retirement? Of course, I never could count on it anyway, but everybody pretended that I could. Successful politicians pretend that something pretty close to absolute security can be achieved, if only we elect them and they pass a few laws.  Georgists aren’t so good at pretending.