As Tolstoy pointed out in slightly different words, anyone who understands the fundamentals of public finance cannot fail to agree that the smartest way to fund our governments is to collect economic rent. So the challenge for Georgists is simply to get the 99% of the population who really don’t think about these things to do so.
The idea is, of course, that if you like (or respect or admire) the person who served you, you don’t tip, but give a gift. A gift to an individual is taxable to the giver, not the recipient, but as long as you don’t give any one person more than $14,000 you won’t pay gift tax. (I get my information from Wikipedia, which is no more likely to be incorrect than other sources I know of.) I find tipping disconcerting, but I do admire and respect the ability of many baristas, waiters, cabdrivers, barbers, etc who have skills I could never hope to develop. I like some of them too, and have had a few of them as students learning the fundamentals of political economy.
So this is an approach Georgists might try, to encourage more folks to think about important issues, while making their lives just a teeny bit easier. No, I have no idea what happens if you put a card and a small amount of money in a tip jar. Maybe new regulations will be issued requiring separate gift jars, and auditors dispatched to assure compliance..
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.
Yesterday’s Guardian carried a very encouraging report from India, where rice farmers are multiplying their production figures by carefully and methodically managing their crops. This has nothing to do with genetic modification, pesticides, or chemical fertilizers, and no need for “protecting” “intellectual” “property.” Of course it may require more labor per acre than other methods, but growing population means growing supply of labor. And it may work best on relatively small, owner-operated farms. The method, known as System of Root (or Rice) Intensification, can be applied to other crops. It’s based on a French Jesuit’s observations of practices in Madagascar, promoted by Cornell’s International Institute for Food, Agriculture and Development.
The Guardian article asserts that Cornell’s work was funded by “an anonymous billionaire,” altho links from the Cornell site imply that “actor Jim Carrey” is somehow involved. At this writing, there are 205 comments on the Guardian article, some of which are insightful. One suggests that the reported results are quite exaggerated, but to read beyond the abstract of the source cited seems to cost $19.95.
I have no idea whether this particular method is as beneficial as described, but just last week I spoke to an Illinois farmer who reported that four adults were gainfully employed, supporting themselves, by intensively cultivating an acre of vegetables. One way or another, people will find ways to coax more food from the earth, if they have a need (or desire) and are permitted to do so.
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.)
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.
Perry Willis’ recent post distinguishes two alternative ways in which the state might transfer wealth to ordinary citizens:
Dragnets, in which everyone receives the wealth, regardless of need
Safety nets, in which only those who are in difficulty receive the wealth.
He characterizes Social Security and Medicare as dragnets, since virtually everyone is covered regardless of need. Costing 15% of wage and salary for typical workers, these are very expensive programs which might be cheaper if the affluent were excluded from receiving benefits. He also claims that “Dragnet programs usually have one other feature — fraud.”
He does not cite any example of a government-funded safety net, tho it seems that Medicaid, which is offered only to those who can meet some need-related criteria, would be a good example. Like any “need-based” government program, it presupposes an apparatus for monitoring everyone’s income from all sources. And does it have fraud? Take a look.
Perhaps the safety net isn’t much superior than the drag net. Is there a better approach? Of course. The citizens dividend does not take anything from wages and salaries, does not require an income-monitoring apparatus (altho it might require some kind of citizenship certification), and gives each of us a fair share of what belongs to all of us.
I have previously discussed Hong Kong’s land tenure system, under which the land is publicly owned, but improvement owners have security of tenure in exchange for paying significant land rent. One result is that most working people don’t have to pay any sales or income taxes. Another is that land is efficiently used.
But there are a couple of concerns:
Since Hong Kong doesn’t collect all the economic rent, speculation can still drive up the cost of housing as well as any activity which uses land (and they all do).
Wealthy mainland residents are moving to Hong Kong to take advantage of the increased liberties which HK residents get, further driving up costs for local people.
Now we read that every HK has declared a sort of citizens’ dividend, every permanent resident will get HK$6,000 (US$773, currently). Bloomberg calls it a “handout,” but I think “share of economic rent” might be more appropriate. Opponents of the move say it will be inflationary, and certainly it could lead to higher economic rent, with speculation driving land costs even higher. Of course, if people expected the government to collect all the economic rent, speculation would not occur. While the cost of living might still increase, giving an equal dividend to every resident would tend to flatten the income distribution, helping the poor much more than the wealthy.
Andrew Kahrl‘s talk this afternoon at APA was “The Plight of Black Coastal Landowners in the Sunbelt South and Its Lessons for Post–Housing Bubble America.”
He used examples from New Hanover County (NC) and Virginia Beach (VA). A hundred years ago, coastal land wasn’t really good for farming, and folks were aware of the danger of storms, so it tended to be cheap. Poor black farmers wanted to own their own land, and this was what they could get. Continue reading Another way the poor and their land are separated
Not from the Federal Reserve; surely none of my readers are “too big to succeed” and therefore qualified for direct quantitative easing. But an arm of the U S Government actually will sell you cash, in $250 increments, accepting credit cards without surcharge (you get any usual rebates or bonuses that your card provides) and with free shipping. The only catch: Your cash is in the form of dollar coins.
Stated purpose of the program is “to make $1 coins readily available to the public, at no additional cost, so they can be easily introduced into circulation—particularly by using them for retail transactions, vending, and mass transit.” (Your government does not want you to just deposit them in the bank, but CTA farecard machines accept them.) Altho coins cost more to produce than dollar bills, they save your government money because they last a lot longer.
For those of us who do not love the Federal Reserve, there is also the consideration that the coins are issued directly by your government, the closest thing we have to greenbacks (more about the advantages of greenbacks).
This program apparently has been going on for a couple of years; I learned about it recently from this old post. It really works; I placed an order January 17, it arrived (by ordinary U S mail!) about a week later, and I will pay for it next week. Presumably you could roll it over by placing another order.
Of course, what with credit cards, checks, direct bank transfers, etc., I don’t spend $250 cash in any month. But maybe we’d all be better off if there was more use of the anonymous cash economy, which this seems to encourage.
There is a meme floating around the Internet (for example, here):
Do you know what our biggest export is today? Waste paper.
The United States has lost a total of about 5.5 million manufacturing jobs since October 2000.
The former assertion seems based on 2007 data reported here, which indicates (without giving a specific figure) that waste paper fills more shipping containers leaving the U S than any other product. A big volume, surely, but is it our largest export, either by dollar value or physical volume?
Take a look at the U S Statistical Abstract, 2010 edition, table 1272 (download the pdf for the international trade section here). Latest data shown is for 2008. Total value of “pulp and waste paper” exported: $7.744 billion. This is less than 1% of total exports ($1287.442 trillion). A few larger figures are Coal ($8.196 billion), Vehicles ($98.871 billion), “Television, VCR, etc” ($24.379 billion). There are eight different categories of chemicals, five of which each exceed $7.744 billion. And $115.248 billion of “agricultural commodities,” including Corn ($13.931 billion) and “Vegetables and fruits” ($14.040 billion).
I don’t have data on physical volume, but many of the products I mentioned above typically do not travel in shipping containers. In fact, one reason for export of waste paper might be that many containers would otherwise have to return empty to Asian ports.
As for the loss of manufacturing jobs, certainly there has been a decline, largely because manufacturing workers have become more productive. The Statistical Abstract only shows manufacturing data back to 2000, but during the period 2000-2008 the constant-dollar manufacturing GDP increased by over 10%, just slightly more than population growth.
I won’t deny that there are serious problems with the U S economy, and I won’t deny that the net outflow of dollars (largely due to petroleum consumption and “defense” expenditures) is unsustainable. It would be a good thing to remove obstacles which hinder American labor from producing in America, such as taxes on production and encouragement of nonproductive speculation. A more balanced flow of trade would likely be a byproduct. The more important result would be higher incomes and a better standard of living for working people.