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Stephen King on Doing Your Share

This is too good not to pass along (via Tom Head on Facebook):

Stephen King: Tax Me, for F@%&’s Sake!

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Do No Evil

One of the biggest budget-busters in the U.S. national accounting system is the clever use of overseas tax havens for large corporations. Those are the same corporations that lobby Congress for the tax breaks that raise your taxes. Here’s a good example of such a practice by a company whose motto is “Do No Evil”:

Google 2.4% Rate Shows How $60 Billion Lost to Tax Loopholes

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A Better Jackson: 1. Land Value Taxation

Walk through downtown Jackson. Observe the vacant lots. Walk past empty storefronts with “For Rent” signs. Note the acres and acres of blacktop parking lots between buildings.

Then walk west on Capitol Street. Admire the King Edwards Hotel, recently refurbished as a Hilton Garden Inn, surrounded by crumbling buildings and a Federal Building that looks more like a prison than an office building.

Walk under the railroad viaduct and continue walking west. Observe the progressively appalling state of the buildings and homes: boarded-up churches and buildings, shabby parks, the Community Stewpot and other public relief institutions for the armies of the unemployed, the mentally ill, and the victims of hard times. On the southwest corner of Rose and Capitol examine the once-luxurious home, now abandoned, of W. W. Lake and his wife Viola, who once funded libraries in every public school in Jackson. Note the shopping center across the street, with its profitable check-cashing services for people who run out of money before their next payday.

Continue west on Capitol Street and pass block after block of decaying homes with peeling paint, many of them deserted, homes that once housed a prosperous middle class and is now the province of slumlords, crack dealers, drug treatment facilities, and flop-houses. It is not a pretty sight.

Then for contrast, and understanding what has been taking place since WWII, drive north up I-55 and take the Old Agency Road exit west. Turn north at the traffic circle onto Highland Colony Parkway and observe the astonishing pace of commercial development all the way to Madison. At the end of the parkway turn left on Hwy. 463 and pass a plethora of gated communities for Jackson’s well-to-do, safely ensconced approximately 20 miles from the corner of State and Capitol Streets at the center of Jackson.

What you have observed is a process that has been going on in the United States since the 1920s, the gradual movement of both the upper and middle classes from the inner city to the suburbs and exurbs, from communities with higher population density to areas of low population density. The result has been suburban sprawl, made possible by government-insured FHA mortgages, the internal combustion engine, cheap oil, and the abandonment of the inner cities to the poor and non-white.
The suburbanization of America, eagerly embraced by the white middle class, has, like all changes that at first seem to have no downside, came at a cost that is becoming more and more apparent. Low density housing requires far greater expenditures on infrastructure than dense urban living. More roads must be built, more water and sewage pipes installed, more electric power cables and telephone wires buried or strung from pole to pole. The greater distance from work requires more gasoline, more cars, more roads and more maintenance of it all.

The longer drives to work and back, and the extra work required to make the typical suburban home presentable (lawn-cutting, painting, repair, ect.) all use up time that people previously spent with relatives, friends and neighbors, most of whom lived in compact neighborhoods that included small grocery stores, shops, cafes and taverns, places where people met and visited with their neighbors and friends on a daily basis. Our new way of living has created more pollution, more greenhouse gases, more depletion of non-renewable resources, and more stress for the individual who may make more money but cannot exchange it for more time to enjoy life.

Today, most suburbanites do not know their neighbors and have lost interest in communities based upon locality. When a burglar alarm or auto alarm goes off in your neighborhood do you run to see if there is a crime in progress? If your house was foreclosed on, would you get any sympathy or help from your neighbors? If you invited your neighbors to a block party, would many of them come? Is there a neighborhood hangout within walking distance where you can get a cup of coffee and visit with some of the neighbors? There was a time when the answer to all of these questions would have been “yes.”

It is easy to see how this has happened. Ever since zoning ordinances were found constitutional by the U. S. Supreme Court in Village of Euclid, Ohio v. Ambler Realty Co., 272 U.S. 365 (1926), people have found it increasingly necessary to drive long distances to work and to purchase the necessities of life. Instead of a mom and pop grocery store on the corner, commerce is now concentrated along major transportation arteries with residential districts placed further away from the main roads, where the noise is more tolerable. Such an arrangement, especially in the absence of public transit (made prohibitively expensive by the low population density) and even sidewalks, requires people to drive considerable distances on the most trivial errands. And when you get into your auto and drive away from your home you will not be interacting socially with your neighbors outside of the occasional accidental meeting in the frozen food aisle. Along with that other voracious consumer of our time, the television, it is a wonder that we ever set eyes on our neighbors.

As the end of cheap oil approaches, however, we will need to rely on our neighbors more and more, since we won’t be able to simply jump into a car and drive off. Gas will cost too much. Food will become more and more expensive as the cost of fertilizer and transportation heads through the ceiling. We will find it necessary to “go local” in a way that people in the U.S. haven’t done for a long time, and to do so will require us to acquire skills that haven’t been cultivated for generations.

So how do the start the process? The first step is to retard the growth of—and then eliminate—urban sprawl. Since Americans have become used to big yards, wide streets, cheap gasoline, electricity and natural gas—the hallmarks of suburbia—reversing the trend will be cutting crosswise against long-held feelings of absolute entitlement to this kind of lifestyle.

The best, and perhaps the only really effective way to reverse the process is to levy a tax upon urban sprawl. Because subdivisions and developments already exist and their owners have substantial investments in them, issues of equity and fairness will make it necessary to go lightly at first, but we must begin to change things immediately, lest the process continue and become even more intractable that it now is.

When I was a teenager in Jackson in the late ‘50s, I frequented the Mississippi Bookstore on Capitol Street between the Heidelberg Hotel and Walgreens drugs and across from Montgomery Ward. Run by a woman who seemed to me at the time to be extremely elderly but who probably was in her late 50s or early 60s, the bookshop resembled something out of Greenwich Village, with shelves of unfinished wood reaching to a high ceiling and holding thousands of inexpensive paperbacks encompassing every subject imaginable.

In the course of my bibliophilic explorations I came across a dark, worn, clothbound book entitled Progress and Poverty by an author of whom I had never heard: Henry George.

I asked the shopkeeper if she could tell me anything about the book and she replied that it was a very great book and everyone should read it. I thought long and hard but ultimately walked out of the bookstore with a fifty-cent copy of Plato’s Republic in the Cornford translation. I have since had little reason to regret purchasing Plato instead of Henry George, but I do regret not having read George’s opus magnum before now.

Perhaps I was turned away by Robert Heilbroner’s book, The Worldly Philosophers, that treated George as something of an eloquent crackpot. It could also have been the Georgians whose acquaintance I had made through several Internet mailing lists during the ‘90s, with their doctrinaire insistence on an absolutely unregulated economy.

Some material sent to me by Alanna Harzok regarding the successful experience of several Pennsylvania cities in raising the property tax on land while simultaneously lowering it on improvements resurrected my interest. The cities that had changed to this system—a split tax system, as it was called—experienced a remarkable increase in the value of building permits compared to cities that taxed land and improvements at the same rate. Pittsburgh, for instance, experienced a 70.4% increase in the value of building permits during a period that saw the average of Pennsylvania’s 15 largest cities decrease by 14.4%. Hartzok commented that “these findings about Pittsburgh’s far superior showing are especially remarkable when it is recalled that the city’s traditional basic industry—steel—was undergoing a severe crisis throughout the latter decade.”

In the early ‘80s, the city of Harrisburg, Pennsylvania, considered one of the most distressed cities in the nation, enacted a land value tax three times higher than the tax on improvements to the land. The promotional literature of the city, quoted by Harzok, states that the number of vacant structures declined from 4200 in 1982 to fewer than 500 in 1994. In addition, the crime rate dropped significantly and the fire rate dropped by more than half during the same period of time. The results are especially noteworthy considering that 41% of the land and buildings of Harrisburg cannot be taxed by the city because they are owned by the state or nonprofit bodies.

There were other small epiphanies that led to my recently ordering a copy of Progress and Poverty and reading it over the past few weeks. One was having read an economics paper (can’t remember where—sorry) that the principal effect of lowering taxes on capital gains was not an increase in economic activity, but an increase in the price of real estate. I never believed that the earnings of workers should be taxed at a higher rate than earnings of someone who merely invested money and profited from the increase in value, but if the only measurable result of the capital gains tax reduction was to reward speculation in land, then it was not only useless but actually counterproductive. The rationale for treating capital gains favorably is to encourage investment in productive capital goods, not to reward speculation.

The second epiphany was the realization that in Mississippi many of the great fortunes were made, not by having actually contributed anything to society, but by astute buying and selling of land, both in urban and rural areas. Buy cheap and sell dear -- that is the road to wealth.

The idea that it is perfectly legitimate and a good and wholesome practice that persons should be able to amass a large fortune merely by shifting assets around has become accepted by the very people who stand to lose the most by such an arrangement. A healthy economy rewards persons who contribute to society. Speculation is, in its essence, parasitism. Inasmuch as we have departed from that policy, our economy has become less healthy. We are encouraged to scorn the vagrant, the beggar, and even the manual worker, while we are encouraged to admire one who acquires great riches purely through speculation, without contributing anything to the public good in return. It struck me that it was not an accident that in the poorest state in the nation the majority of fortunes have been gotten through the increase in the value of land. True, there are some who built factories or great retail establishments, but that does not negate the underlying fact that the basis of most fortunes in Mississippi has been land.

George’s crucial observation is that the value of land is not the result of the efforts of the owner but is created by the efforts of the entire community and that under the present system of land ownership the land owner captures all the increased value for himself in the form of rent. George had lived in San Francisco from its early days—where no one was rich but there was no poverty—and watched it grow into a teeming metropolis in which the average worker was far more productive than in the early days but yet suffered from lower wages. The return from increased productivity, writes George, was not captured by the capitalist, as Marx theorized, but by the land owner, whose land increased in value as the city grew, and who was therefore able to extract in rent an increasingly large proportion of production with no effort or contribution on his part.

In every direction, the direct tendency of advancing civilization is to increase the power of human labor to satisfy human desires -- to extirpate poverty, and to banish want and the fear of want. All the things in which progress consists, all the conditions which progressive communities are striving for, have for their direct and natural result the improvement of the material (and consequently the intellectual and moral) condition of all within their influence. The growth of population, the increase and extension of exchanges, the discoveries of science, the march of invention, the spread of education, the improvement of government, and the amelioration of manners, considered as material forces, have all a direct tendency to increase the productive power of labor -- not of some labor, but of all labor; not in some departments of industry, but in all departments of industry; for the law of the production of wealth in society is the law of “each for all, and all for each.”

But labor cannot reap the benefits which advancing civilization thus brings, because they are intercepted. Land being necessary to labor, and being reduced to private ownership, every increase in the productive power of labor but increases rent -- the price that labor must pay for the opportunity to utilize its powers; and thus all the advantages gained by the march of progress go to the owners of land, and wages do not increase. Wages cannot increase; for the greater the earnings of labor the greater the price that labor must pay out of its earnings for the opportunity to make any earnings at all. The mere laborer has thus no more interest in the general advance of productive power than the Cuban slave has in advance in the price of sugar. And just as an advance in the price of sugar may make the condition of the slave worse, by inducing the master to drive him harder, so may the condition of the free laborer be positively, as well as relatively, changed for the worse by the increase in the productive power of his labor. For, begotten of the continuous advance of rents, arises a speculative tendency which discounts the effect of future improvements by a still further advance of rent, and thus tends, where this has not occurred from the normal advance of rent, to drive wages down to the slave point -- the point at which the laborer can just live.

And thus robbed of all the benefits of the increase in productive power, labor is exposed to certain effects of advancing civilization which, without the advantages that naturally accompany them, are positive evils, and of themselves tend to reduce the free laborer to the helpless and degraded condition of the slave.

—Progress and Poverty, Book V, Chapter 2.

There is no point in this article of fully setting out George’s argument, but for those who are interested, the book is still in print, as is the work of a number of Georgist economists. It would be difficult, however, to find a work of superior eloquence in the English language as Progress and Poverty.

George’s prescription for the evils of private land ownership was not confiscation by the government of private land. Instead, he proposed that the government levy a tax sufficient to capture all rent, both extrinsic and intrinsic1, leaving the land owner with nothing to gain from his mere ownership, and forcing him to either put his land to use or sell it to someone willing to make use of it. The land is to be taxed but not the improvements. Persons who purchase land for speculation would thus find it to be an unprofitable undertaking. Slumlords would quickly become extinct, since most of their rent they extract from their tenants is for the use of the land and not the hovel sitting upon it. The large vacant lots that characterize the contemporary urban cityscape would, of necessity, either be improved or, if the owners were not so disposed or able to improve them, sold to someone willing and able to build upon them.

George believed that if rents were taxed for their full value, either all or most other taxes could be eliminated, a great boon to commerce and general prosperity. He further argued that the booms and busts that have characterized the modern capitalist economy since the beginning of the industrial revolution up to the present would be either eliminated or considerably ameliorated. The fact that the current meltdown of our economy has a great deal to do with a six trillion dollar real estate bubble would seem to confirm his diagnosis.

George’s ideas have, as one would expect, proven extremely unpopular among those whose wealth and power is based on ownership of land. From time immemorial, political power has arisen from possession of land. A conquering king granted land to his warriors upon the condition that they would raise for him an army if he needed one. His closest lieutenants became dukes, earls, counts, and so forth, and passed the land to their progeny. The source of their sustenance was, in essence, rent, whether in kind, as it historically was, in money, or in service as a soldier. To the ruling classes the ownership of large estates and land has always been the natural order of things. Nevertheless, George’s ideas acquired a large following around the world. His followers frequently called themselves “single taxers,” holding that the single tax on land was the only tax that should be levied. The land value tax has been criticized by economists ever since the publication of Progress and Poverty, but never successfully refuted.

The Pennsylvania experiment might be termed Henry George lite. Overall, it has been a success. The reasons for this are not difficult to ascertain. If the tax on land is raised and the tax on improvements is lowered, it is economically prudent to make improvements to the land, whether constructing an apartment complex or a factory, or—in a rural area—by farming it. It becomes a losing game to simply sit on the land, anticipating a windfall from the increase in value. As economists have pointed out for many years, taxing an activity generally diminishes it. George pointed out the obvious fact that when land is taxed nothing is diminished, save the rent going to the land owner. The land stays where it is. No one can pack up their land and move to China or Mexico. It is therefore fair and wise to reduce the taxes on human efforts and increase the taxes on gains that are realized without effort.

The city of Jackson, despite its new convention center, the technology training center, and the King Edwards hotel project, is losing out on development to cities around its periphery. An appalling percentage of land in downtown Jackson is undeveloped. It is patently obvious that the policies of the past 70 years have been counterproductive, increasing the urban rot as the boundaries of the metropolitan area expanded into Rankin and Madison counties. George explained the phenomenon over 100 years ago:

The same thing may be seen in every rapidly growing city. If the land of superior quality as to location were always fully used before land of inferior quality were resorted to, no vacant lots would be left as a city extended, nor would we find miserable shanties in the midst of costly buildings. These lots, some of them extremely valuable, are withheld from use, or from the full use to which they might be put, because their owners, not being able or not wishing to improve them, prefer, in expectation of the advance of land values, to hold them for a higher rate than could now be obtained from those willing to improve them. And, in consequence of this land being withheld from use, or from the full use of which it is capable, the margin of the city is pushed away so much farther from the center.

But when we reach the limits of the growing city the actual margin of building, which corresponds to the margin of cultivation in agriculture -- we shall not find the land purchasable at its value for agricultural purposes, as it would be were rent determined simply by present requirements; but we shall find that for a long distance beyond the city, land bears a speculative value, based upon the belief that it will be required in the future for urban purposes, and that to reach the point at which land can be purchased at a price not based upon urban rent, we must go very far beyond the actual margin of urban use.

Or, to take another case of a different kind, instances similar to which may doubtless be found in every locality. There is in Marin County, within easy access of San Francisco, a fine belt of redwood timber. Naturally, this would be first used, before resorting for the supply of the San Francisco market to timber lands at a much greater distance. But it yet remains uncut, and lumber procured many miles beyond is daily hauled past it on the railroad, because its owner prefers to hold for the greater price it will bring in the future. Thus, by the withholding from use of this body of timber, the margin of production of redwood is forced so much farther up and down the Coast Range. That mineral land, when reduced to private ownership, is frequently withheld from use while poorer deposits are worked, is well known, and in new states it is common to find individuals who are called “land poor” -- that is, who remain poor, sometimes almost to deprivation, because they insist on holding land, which they themselves cannot use, at prices at which no one else can profitably use it.

Ibid, at Book IV, Chapter 4

Establishing a split tax requires legislation. Many of the suggestions on this list will require decisions by authorities outside the city, but there is no reason why the city should not be allowed to try something new when the present system of taxation has proven inadequate, if not actually harmful.

That the present system is counterproductive is hard to refute. The city should ask the legislature to allow it to tax land at a higher rate than improvements, so as to discourage land speculation and encourage the present landowners to either improve or quit their land. A revenue-neutral adjustment, together with protection against sudden excessive tax increases for homeowners, would radically improve the long-range outlook for the City of Jackson. Of all the suggestions on this list, this one has the greatest potential to improve the lives of all Jacksonians.

----
1 When a landowner builds a factory on his own land, he does not have to pay rent for its use. Nevertheless, the rent that he did not have to pay returns to him in the higher profits from his factory.

Update 4/18/2010: Local Economies Close the Distance Between Us
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