taxes – Page 8 – The Menace of Privilege

Progressive revenue move in Zimbabwe

Harare is now taxing residential parcels based exclusively on the value of the land, with all houses free of tax. The net result is that most homeowners will pay the same or less, but owners of vacant plots will pay “a lot more,” with total revenue expected to increase from US$8 million/month to US$12 million/month. Authorities will not literally value every individual parcel, but assign values based on zones and size categories, providing a pretty good approximation of value at relatively little cost.

In addition to the 50% increase in revenue,

[T]he migration from land and improvements valuations to land only with the rates set by zoning was designed to encourage people to develop land fully or sell it to those who will.

According to the source article, houses in some parts of Harare had already been exempt before the change. Thanks to Gil Herman for the link.

Our local authorities, if they were serious about the need for more revenue without burdening residents, would seek a similar system.

And some Chicagoans might want to try Harare activists’ approach to the privatization of parking and towing.

Collecting the Rent in Hong Kong

Georgists often like to point to Hong Kong as a successful example of funding a community’s needs from economic rent. The result is a prosperous and (relatively) free city, a magnet for immigrants. But our information is old, and numerous changes have happened since the transfer of power, from UK to PRC in 1997.

So I was pleased to spend a bit of time this afternoon with a Hong Kong native, who now lives and works in Chicago. Not familiar at all with Henry George, not even interested in political philosophy as far as I could tell, but able to speak with me about current economic conditions. If I have any errors below, I trust that someone will correct me. Continue reading Collecting the Rent in Hong Kong

Medical tax to burden homebuyers

Yes, the report of the Financial Crisis Inquiry Commission is out. It’s over 600 pages long. Sources I respect say it’s the expected whitewash. I probably won’t ever read it. I still haven’t read the Obamacare Act (yeah, thats not a good name for it, we really oughta call it something like DemoPublicare.) Anyhow, I just found out how it’s going to increase the screwing up of the housing market.

As Lew Sichelman explains, it includes

a highly targeted 3.8% tax enacted as part of the controversial health-care reform legislation that has been signed into law and which Republicans are now trying to overturn.

The tax will apply to individuals with adjusted gross incomes above $200,000 and couples filing jointly with more than a $250,000 AGI. If you and your spouse choose to file jointly, the AGI threshold is $125,000 for each of you.

The Medicare tax, so named because the proceeds are to be dedicated to the Medicare Trust Fund, will be on interest dividends, rents less expenses, and capital gains less capital losses. But the key thing to remember is that the tax is based on whichever is less, the gain you made on the sale of the house or the amount your income exceeds the AGI threshold.

It’s complicated, so it’s hard to predict how it will effect every seller. As always with tax matters, it’s best to consult with a professional.

Of course, the income limits may change (legislatively or thru unmeasured inflation), so any of us who own our housing better save all receipts which might possibly have anything to do with adjusting the basis. But at least it doesn’t immediately affect the rest of us, does it?

Not so. I’d say this is another in a series of moves discouraging old people from selling houses that are larger than they need or really want, and which would otherwise be bought by families with children who could use the space. Earlier policies with similar effect include real estate tax breaks targeted at old people, and whatever programs facilitate reverse mortgages.

So what will homeseeking families do? Most likely, they’ll find houses they can afford, and the probability is that these will be further out. (The tax presumably also applies to sales of high-priced vacant lots, another force discouraging construction of homes on well-located sites.)

So maybe instead of the Obamacare Act, we should call it the Sprawl Enhancement and Old People Stabilitzation Act.

LVT better than bank secrecy or Wikileaks

Former banker Rudolf Elmer, opposed to use of Swiss bank secrecy to aid evasion of taxes by non-Swiss, has provided Wikileaks with two CD’s of (apparently incriminating) data. Who is right here? Customers were assured the data would remain secret, now it will be revealed. But aren’t governments entitled to collect taxes which they impose on their citizens? If not, why should anyone pay? If so, how can anyone’s financial affairs be private?

The answer is, none of this would be an issue under Land Value Taxation. When revenue comes from the land, government does not even need to know who the owner is. Government need only know sales prices and a few readily-observable characteristics. The tax has been paid or it has not been paid, and in the latter case a process starts which eventually will result either in the tax (plus late fees) being paid, or the land being taken by the government. (And remember, the government is necessarily the ultimate custodian of land records, a natural monopoly.)

Only land value taxation permits financial privacy.

Missing from Chicago’s Transportation Platform

Eight area advocacy organizations have issued “Chicago’s Sustainable Transportation Platform,” recommending public policies for a better transportation system. Since I’m a paying member of at least two of the eight, and on the mailing list of a well-funded third, I had hoped that maybe a few sensible things would be included. You can decide for yourself which of the ideas are sensible (“Design streets that are safe and convenient for all users.”). Pretty much all of them could be construed as “Create additional jobs and funding opportunities for us and our friends,” but that’s true of most public policy discussions.

I’m mainly concerned about what’s missing, for instance:

Obtain transit funding from those who benefit from transit service– the owners of land and other privileges in areas served by transit.
Reduce the number of free and subsidized parking spaces provided at public and nonprofit facilities, including libraries, police stations, educational and medical institutions. Use the resulting revenue to reduce taxes on productive activity.
Improve transit governance by requiring the majority of governing boards of CTA, Pace, Metra, and RTA to be regular transit users, and no board member who takes fewer than five transit trips in a month can receive pay for that month.

Other ideas?

Income tax rates don’t matter

Lots of discussion lately about income tax rates, pointing out that individuals reporting high incomes once were subject to marginal federal rates in excess of 90%, whereas today that rate never exceeds 35%. And corporate incomes face federal tax rates of 39.3%, higher than most other countries. Various ignorant or deceptive interests use these figures to make all kinds of arguments, such as that America’s rich are undertaxed, or American corporations are overtaxed.

But the secret, that all lobbyists know, is that income tax rates don’t much matter. When wealthy Americans were subject to 90% taxes, they didn’t really have to pay them. Instead, accountants and lawyers and various other shysters put together all kinds of partnerships, trusts, and other mostly imaginary constructs, which were used to legally hide or redefine income into something else. It was a bother and an expense, but way cheaper than paying taxes.

As for corporations, they have all kinds of manipulations available to reduce their taxes, as I discussed two months ago. (If individuals figured their taxable income the way that corporations do, we could deduct all our expenses for food, clothing, medical treatment, and practically everything else). If a few corporations appear to pay taxes in excess of the federal rate, it is due to state income taxes, local real estate taxes, other nonincome taxes, or special circumstances.

What brings all this to mind is this post, which provides two nice examples to illustrate my point. Read them if you have the patience, but the basic point is that corporations are able to entice many very intelligent, experienced people to devise ways to avoid taxes that legislators intend (or at least pretend to intend) to impose. They are opposed by many very intelligent, somewhat less experienced (and less well-compensated) people employed by IRS and other agencies, many of whom hope in the future to be employed by the corporations. The net result of taxing incomes, especially corporate incomes, is that many of the most intelligent and creative people, who might be providing goods or services that people need or want, are instead playing word-games with each other.

I would appreciate if someone would explain to me how a land value tax could possibly waste 1/10th of the brainpower absorbed by this useless, destructive system.

Real estate can help pay for transit

Haven’t posted much lately; busy with other things, including trying to clear off my desk. In the process of which I found some notes of interest

How do you fund transit in the “most liveable city in the world?” Vancouver uses the real estate tax to cover about 35% of its operating shortfall (net of fares). Fuel tax covers an almost equal amount (See this pdf). One can imagine how well Chicago’s transit system could run if funded this way, assuming also that it was competently planned and managed.

Unfortunately, Vancouver fails to fund capital costs in this way, relying instead on what Canadians call “senior governments,” meaning provincial and federal funds. Probably that has something to do with the continuing real estate bubble in the area.

I also found notes I took at a conference in July concerning Japanese high speed rail services. Japan is said to be the only country with privately-owned high speed passenger rail. How is it funded? Hint: JR-East, one of the big operators of high speed trains, gets 32% of its gross revenue (see this pdf) from real estate it owns, and intends to grow this to 40 by collecting more of the value that good transport gives to real estate.

Is waste paper our major export?

There is a meme floating around the Internet (for example, here):

Do you know what our biggest export is today? Waste paper.

and

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.

Corporate income tax is evil

We know that because “Don’t be evil” Google pays almost no corporate income tax. This Bloomberg/Business Week article outlines how they do it. It involves Dutch, Irish, and Bermudan subsidiaries, and is apparently quite legal. In addition to playing international transfer-pricing games, of course, corporations can take advantage of various incentives and loopholes built into or discovered in the tax code.

Naturally, I am mentioning this to point out that a land value tax cannot be avoided, as long as land transaction, description, and payment records are public. (And, I might add, as long as there are some reasonably free news media, and some members of the public who pay at least a little bit of attention.) There is never any question as to which jursidiction land is in, and there is no need for incentives to attact land.

Let’s you and him pay to maintain my land value

Chicago Metropolis 2020 has issued a new report about Illinois transportation. (Right now, the report is on their front page; I don’t see a permanent link.) Their stated objectives are things I support, including better and more attractive public transportation as well as a more efficient freight system. They acknowledge that coordination and planning need to be improved, and that good transportation is an important component of a strong economy.

They also point out that much of the current system is in bad shape, and that billions of dollars would be required to bring it up to a reasonable standard. They quote estimates of $45 billion over ten years to refurbish and expand Chicagoland public transportation, and $171 billion over 30 years for transit and highways statewide. They propose to pay for this using an increased motor fuel tax, increased and more market-sensitive tolling, and innovative financing techniques (about which more is below). They do not claim that these sources would be fully adequate to the “need.” (My own opinion of fuel taxes is that, yes, they ought to be increased, but whatever amount is raised should be devoted to the budget of the military, who spend a lot of money attempting to maintain petroleum supplies. ) Continue reading Let’s you and him pay to maintain my land value