Back in the old days, pre-Internet, the Statistical Abstract of the United States was usually the first place I’d look for any US data that the feds were likely to collect or review. I could cite it with confidence that most readers would also have access to it, and it included source citations if more detail was needed. In the Internet age, it continued as a convenient resource, posted annually on the Census Bureau’s web site.
I had missed the news (was it even reported in the dominant media?) that the 2012 Abstract will be the last. If the federal budget must be cut, then I suppose this is one way to do it, but it seems that our rulers could have found a better way.
Apparently a guide to sources will remain, at least for the time being.
The basic function of money is as a medium of exchange. Inevitably, a secondary function arises as a measure of value. Money can be paper, precious metals, shells, whatever people in a particular time and place use as a medium of exchange. There’s no reason that it would need to have “intrinsic” value. If people use U S currency to buy and sell, then it is “real money.”
So is gold “real money?” I don’t think so. Just about nobody uses it as a medium of exchange. Historically, gold coins have sometimes been used but for ordinary people silver, copper, or base metal fiat-type money would be much more common.
Certainly fiat money can depreciate, usually does, and for us in the U S that has been and will almost certainly continue to be the trend. And gold might be a good investment, in the sense that it will be exhangeable in the future for more real wealth than it is now, or at least more in comparison to other kinds of investments available to ordinary people. Of course, gold can depreciate too, if large new deposits are discovered or folks decide they really don’t want gold after all. Which isn’t to say that either of these things will happen any time soon.
Anyone who wishes to resurrect the “gold standard” might want to read the late Peter Bernstein’s “Power of Gold,” or some other history books. Somehow we end up electing people who don’t put a high priority on keeping the dollar strong (or at least, not too much weaker). If that’s a problem, then maybe we should be electing other people, or finding ways to reduce the power of those who purchase elections. Making the U S dollar convertible into a fixed amount of gold is not going to bring prosperity, or even prevent further disruption. There are plenty of examples of economic collapse under a gold standard.
It might, however, benefit those who own gold, or gold mining stocks.
Somebody please disagree with me, or I will assume all of the above to be true.
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.
I am the second-least-qualified person to review this book. That’s because it takes for granted that the reader is a believing Christian, and that the reader has an Amazon Kindle or other proprietary software (or hardware) with which to read it. I claim neither qualification; what I review here is a text which I was told is the text of this book.
An earlier version of this book is the basis for the course Economics as if God Cared, offered by John Kuchta once or twice each year at the Henry George School of Chicago.
In 2010, the University of Minnesota’s Transitway Impacts Research Program released two studies of the impact of the Minneapolis light rail (“Hiawatha Line”) on real estate values. The residential study (pdf) estimated that houses near rail stations gained a total of $29.4 million more than houses outside the area, and multi-family properties gained a total of $17.7 million. The commercial/industrial study (pdf) estimates an increase of $20 per square foot (pdf) of building space, tho they do not extrapolate this to estimate the total impact. Assuming for the moment that the commercial/industrial impact (which includes much of downtown Minneapolis) is double the total residential impact, we have a total land value gain of $141 million.
Now, that’s a nice amount of money, but building and equipping the rail line cost $715 million in total tax money, and it seems per page 32 of this big pdf to require about $15 million in annual operating subsidy from taxes. Assuming the construction cost to be financed with bonds costing 4%, that’s an annual cost of about $44 million (in addition to fares collected.) Can this be justified by a land value increase of $141 million?
It’s a question worth asking, but there are reasons the answer may be “yes, easily.” First, a big shortcoming of the studies is that they compare prices before the line started operating, in 2004, with prices afterwards. It stands to reason, and has been established elsewhere, that real estate values start rising no later than the beginning of construction for a new rail transit line.
Second, real estate sales price may be the capitalized value of future expected net rent, after taxes, but is only indirectly related to gross rent. The difference is taxes, not only the real estate taxes collected against the parcel, but also other taxes which operate to reduce rent. Thus, increased real estate tax, sales tax, state income tax, and other taxes which may occur as a result of the transit line should be recognized as a benefit which the community receives (and collects!).
Finally, the studies look only at the localized effects within a mile of the station. Of course the greatest concentration of benefits will be found in this area, but a small percentage value increase regionwide, which could result from the rail line, could sum to a large amount but would not show up in these studies.
In conclusion, it is certainly possible that the community benefit of the Hiawatha Line, as measured by actual land value, far exceeds the cost of building and operating the facility. Unfortunately, these studies do not actually test the proposition.
None of this is to say that transit investment always increase land value. A project whose main purpose is to provide jobs and contracts, with little transportation benefit, might cost far more than the resulting increase in land values (if any).
Thanks to Bill Batt for the lead to these studies.
A relevant query from Mohamad Tarifi showed up on the Facebook LVT group:
photo credit: Zoomar via flickr (cc)
A surprising lesson I learned from helping a family member shop for a house in the US: most property value is in the improvement (building) not the land. For example, in a 1M$ house only 100k-200k is land (and this is south california where land is supposed to be super expensive). Since I am new to all of this can someone please explain to me why this does not significantly weaken the LVT argument?
He doesn’t tell us which part of Southern California this is; nowadays there are plenty of places where land (and houses) are worth little. But even in prosperous times, builders of new houses typically expect the land to cost maybe 20% of the selling price for a new house, so his figure is plausible for some areas. But a new house isn’t the average house.
Routinely, in any dynamic community, houses (as well as other buildings) are demolished from time to time so the land can be re-used. When this happens, it means the land with the house on it was worth less than the bare land. The average house is somewhere along the path from “land value is 20% of total” to “land value is over 100% of total.”
The existing U S personal and corporate income tax cause an additional bias to underestimate land value. The owner of “income property” can deduct an amount from her taxable income based on the “depreciation” of the improvement, but land cannot be depreciated. And, since the U S Government has little idea what the selling price of land actually is, it is a simple matter for the “taxpayer” to overestimate the proportion of real estate purchase price which is for the improvement.
Much like Korea, Japan, and other advanced countries, Taiwan has a land value tax which requires it to monitor land value regularly. And they do, apparently pretty well, as indicated by this report that 2011 land values average 8.65% over the previous year. The land value tax could be one of the reasons Taiwan seems to be more prosperous than most countries, but that isn’t my point.
My point is that assessing land value is not exceedingly difficult, if one has competent and reasonably honest assessors. The most valuable land in Taiwan is reportedly under the Shin Kong Life Tower, NT$1.21 million per square meter (about $4,000 per square foot, a figure probably never seen in Chicago).
Hong Kong image credit: theloneconspirator via flickr (cc)
New York’s transit system, like those here on the U S mainland, finds itself in a financially unsustainable position. Despite huge subsidies from taxation of productive activity, its managers claim a need for $10 billion additional capital funds, and the current year’s budget assumes a docile union as well as $35 million that appears imaginary.
And, like private-sector corporate managers, its chief has departed the troubled system for triple the compensation at a more prosperous organization, in this case the Hong Kong Mass Transit Railway. Would you blame him?
For those of us who seek reliable transit funding from a source which does not burden productivity, the important point is what this relocated executive calls Hong Kong’s “sustainable financial model.” And what is that? Simple, and no surprise to those who have been paying attention here. The Hong Kong Mass Transit Railway Corporation “earns millions of dollars from real estate developments along its rail lines.” That’s all it takes. Collect some of the land value, which public transportation supports, to fund the operation at reasonable fares. [Oh, yeah, and get competent managers for the transit operation, but they don’t mention that here.]
Lots of folks seem upset that corporations are being treated like people. True, America prospered for centuries with tight limits on corporate powers (fine history here), and it might be a good idea to again restrict the privilege of forming and maintaining corporations. Or maybe to do away with them altogether.
But if, instead, corporations are going to have the same powers as natural persons, let’s go about this systematically.
A corporation can deduct all its expenses before calculating its taxable income. A natural person should be allowed to do the same, deducting the cost of food, housing, medical treatments, transportation, and everything else. If the result is a net loss, carry it over to the next year.
A person doesn’t get full legal rights until the age of 18 (or for some rights, 21). Until then, the parents are responsible for most kinds of damage which the person might do. So if a corporation is formed today, the stockholders should for 18 or 21 years be liable for the corporation’s debts and damages. The stockholders would also be responsible for making sure that the corporation is properly cared for and educated. In serious cases of irresponsible stockholders, the State Department of Children, Family, And Infant Corporation Services would come in and take the corporation away.
How about voting? Should a corporation, having reached the age of majority, be permitted to cast a vote? I’m not sure about this. Under “one corporation one vote” the megacorporations really wouldn’t be very influential. But wealthy people might choose to form many small corporations in order to influence elections. And of course if they can vote, wouldn’t corporations have to be permitted to hold office? Voting is definitely a concern, but since the rich and their corporations control major elections now, I doubt any choice in this matter would make things appreciably worse.
This post is about credit unions, and it seems to be turning into a rant. Rather than read it, I suggest you go here to see some entertaining short videos that the credit union folks have put together. My experience has been a bit different.
Occupy Wall Street are good folks, I’m sure. I even tried to display their banner on this blog, but for some reason the plugin doesn’t work here. Anyhow, they suggest I get away from the big banksters and open an account at a credit union.
