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.

Another report ignores the citizens dividend

marginal rate chart
From C. Eugene Steuerle’s June 27, 2012 statement at

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.

Value capture is different from collecting the land rent

Photo by Sean Munson via Flickr (cc)

Henry George phrased his main proposal in various ways, from “make land common property” to the more pragmatic “abolish all taxation save that upon land values.”  Certainly a land value tax is a practical way of capturing land rent, and to the extent land value figures in existing assessments and taxation we are already capturing some of it.

But it’s important to recognize that land value, or more properly the selling price of land,  is only a close relative, not an identical twin, to land rent. One difference is that selling price is affected by estimates of what the future rent will be.  And land selling price is much more directly affected by the cost and availability of credit than is land rent.  Use of credit, in turn means an opportunity for banksters to get involved, decreasing the likelihood of real public benefit from public investment.

Which brings us to the World Bank’s 2008 report on Unlocking land values to finance urban infrastructure.  This report really could be entitled “Worldwide Catalog of Methods More Complicated and Prone to Corruption than Collection of Land Rent, Which Could Be Used to Finance Some Infrastructure But More Importantly Involve Borrowing and Lending of Large Sums Which Is, After All, What The World Bank Does.” In addition to involving large loans, the outstanding feature of all of these methods is that none provide any resources for operation or maintenance, thus they can help bring about the need for new infrastructure in the not-too-distant future.

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.


Economic divide is geographic, too

“Debt” graffito photo by Franco Folini via flickr (cc)

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.

Irish “Smart Tax” report issued


The Irish organization Smart Taxes has issued a proposal for site value taxation of residential land in that nation.  For those of us elsewhere, a highlight is the brief description (on pages 4-5) of some existing successful land value taxes in North America, Europe, Asia, and Australasia.  There is also (unsourced) data asserting that

In the US,  recurring taxes on immovable property form 11% of all  tax revenues, while in Canada and the UK they contribute 9%.  In Australia and New Zealand, they contribute between 5% and 6% of all tax  revenues.  In Western Europe, the contribution is typically lower   (1.5% in 2008)

Also significant is the discussion of how to justly implement a new site value tax in an area with limited data.  Apparently Ireland’s existing real estate tax affects only commercial property, so even such basic information as the name and address of the property owner can be a challenge to obtain.

The report considers a tax in the range of 1% to 2% of site value, which is thus comparable to real estate taxes in many US jurisdictions (which, however, fail to exclude the value of improvements).

Overall, an easy read, just 22 pages, entirely in English, pdf directly downloadable  here.