Land Value Taxation 101

The Taxing Question of Land

Directed by Yoni Higsmith

2014

Film Review

The Taxing Question of Land is a British documentary about Land Value Taxation (LVT), a concept first proposed by American Henry George in 1879 (see Progress and Poverty: a Suppressed Economic Classic).

The filmmakers use simple animated infographics to argue that LVT is an ideal solution to a global debt-based economic crisis, especially as nothing else has worked. I tend to agree, provided LVT is combined with a return to sovereign money.* So long as bankers retain the power to create money out of thin air, they will always tilt any taxation scheme in their own favor.

The basic definition of Land Value Taxation is a tax that captures a percentage of land value on an annual basis to cover public expenditures. In his 1879 book Progress and Poverty, Henry George’s main argument for Land Value Taxation is that it restores the Commons. This film focuses mainly on secondary arguments that revolve around fairness and economic equality.

The filmmakers point out that a property’s increasing value nearly always depends on its proximity to public services (ie schools, water mains, sewers, roads, public transport) paid for by taxpayers – making it utterly reasonable that taxpayers should claim a share of this increased land value. They describe LVT as a “tax shift,” rather than a new tax, as it would reduce and/or eliminate most other taxes.

They also argue

• That unlike income, corporate and sales taxes, LVT wouldn’t suppress production and jobs.
• That intelligently implemented LVT would eliminate the need for government borrowing (and debt) because it would raise sufficient revenue to cover all government services.
• That LVT would eliminate tax avoidance because unlike other wealth, land is impossible way to hide.
• It offers and fair and painless way to reduce wealth inequality as the rich start to share the cost of paying for public services.

They go on to list a number of jurisdictions (New South Wales, Hong Kong, Estonia, Singapore, Taiwan, Pennsylvania and Mexicali) that have significantly reduced other taxes by establishing an LVT.

LVT is also unique in its bipartisan appeal. In Britain, it has adherents belonging to the Greens, Liberal Democrat, Labour and Conservative Party. Conservatives like it because it simplifies the tax system.

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*In a sovereign money system, the public (as opposed to private banks) maintains the sole right of issuing and regulating money. See An IMF Proposal to Ban Banks from Creating Money

How an LVT Might Have Altered the Course of History

The Traumatised Society: How to Outlaw Cheating and Save Our Civilisation

by Fred Harrison (Shepheard-Wallwyn Limited, 2012)

Book Review – Part II

(In this section Harrison discusses the history of countries and communities that have tried to enact a Land Value Tax. See Part I here)

Britain’s Experience with Land Value Tax (LVT)

In Britain there have been several attempts to end predatory rent-seeking through the enactment of LVT. As a result of Henry George’s 1879 international bestseller Progress and Poverty, Winston Churchill (still a liberal in 1909) became one of the most vocal proponents of the People’s Budget. The law, passed by the British parliament in 1909, sought to shift the burden of taxation from wages to land. It was never implemented because the British aristocracy went to court to block the land valuation required to assess the tax. In 1931 Parliament passed a revised version of the People’s Budget, which Chancellor of the Exchequer Neville Chamberlain simply deleted it from the law book in 1934. If the LVT had been fully implemented, Britain would have been spared the worst effects of the Great Depression.

How an LVT Might Have Altered the Course of History

Harrison moves on to explore how an LVT might have alleviated severe economic and political turmoil in other countries:

• Ireland – rent seekers “sucked: out all the wealth of Ireland for 200 years, a process that didn’t end with independence. Ireland’s “Celtic Tiger” could have been sustainable if it had been funded by a LVT rather than debt. The result was a debt/real estate bubble that left the country even worse off when the bubble burst in 2008. In 2010, Harrison advocated for Ireland to pay off its debt by implementing a LVT. This would have provided the revenue the Irish government needed to stimulate growth. Instead the IMF bailout and austerity cuts has deeply suppressed growth.
• China – made a fatal error by failing to implement an LVT when they began to privatize collectively owned land in the 1980s. China is currently facing slowing growth, thanks to a $1.7 trillion debt incurred by their city and provincial governments. While the central government was building up massive cash reserves by selling cheap exports, they forced regional governments to self-fund their public services. The only way they could do this was by selling land to property developers and by borrowing money.
• Cuba – made a fatal error on November 11, 2011 when they began selling collectively owned land to rent-seekers, and allowed rents to be capitalized into land prices – instead of taxing them.
• Russia – Gorbachev envisioned land remaining in public hands as part of Glasnost. After a threatened military coup forced him to step down, Harrison went to Russia trying to persuade Yeltsin to adapt an LVT. Instead Russia’s first president opened the country to the IMF and western rent-seekers. Both sucked out sufficient wealth to set the country’s standard of living back several decades.
• Africa – South Africa’s current economic difficulties relate to a fatal error they made in 2004. They amended their LVT to add a tax on property improvements but should have done the opposite – increase the LVT and reduce other taxes. Much of the land in the rest of sub-Saharan Africa is still communally owned. Thus there is still great potential for emerging African economies to adopt an LVT. This would allow them to develop debt-free, sustainable economies that don’t leave the majority of the population in abject poverty.
• The US – suffers from a “constitutional neurosis,” according to Harrison. Supposedly the Declaration of Independence and US Constitution were based on the Scottish Enlightenment. Whereas John Locke talked about a universal right to “Life, Liberty and Estate (Land),” our founding fathers changed this to “Life, Liberty and the Pursuit of Happiness” even before the Constitution was written.

The Future of LVT

As Harrison points out, at present rent-seekers are extremely powerful and have absolute control over government, media, and public education. Nevertheless as countries in the Middle East, North Africa and Latin America escape US military control, it’s imperative they have an avenue to escape the economic control of local and international rent-seekers. By adopting an LVT, they guarantee themselves sufficient income to provide government and public services – without falling into the predatory clutches of international bankers and the IMF.

In his 2011 book Re-Solving the Economic Puzzle, Walter Rybeck relates how the US contemplated LVT enabling legislation during the Carter administration. As an assistant to Representative Henry Reuss (D-Milwaukee), Rybeck helped Reuss (as chair of the House, Banking, Finance and Urban Affairs Committee) promote land and resource taxes as a way to address crumbling infrastructure in financially strapped cities and states.

Enter Sarah Palin

According to Rybeck, a number of communities (and one state) have already adopted variations of an LVT. Alaska’s oil/gas tax is the best example of a resource-based LVT. This tax provides 80-90% of Alaska’s general fund, as well as providing annual dividends to residents. As governor of Alaska, Sarah Palin introduced Alaska’s Clear and Equitable Share (ACES), which charges a 25 percent tax rate on oil profits, with the rate increasing progressively as oil prices go up.

Five other states have passed LVT enabling legislation – Connecticut, Maryland, New York, Pennsylvania, Virginia, Washington – to make it easier for local communities to adopt an LVT.

Other American communities that have already benefited from an LVT include California’s Central Valley, Fairhope in Alabama, Arden in Delaware, and Pittsburgh and other cities in Pennsylvania.

Originally published in Dissident Voice

The Trauma of Cultural Genocide

The Traumatised Society: How to Outlaw Cheating and Save Our Civilisation

by Fred Harrison (Shepheard-Wallwyn Limited, 2012)

Book Review – Part I

(The first half of Harrison’s book explores the history of land value tax and the cultural genocide that resulted from the Enclosure Acts and the dispossession of Europeans from communally owned lands.)

The Land Value Tax (LVT) is a “radical” form of taxation first proposed by Henry George in his 1879 Progress and Poverty (see Progress and Poverty: the Suppressed Economics Classic). What George proposes is to replace taxes on wages, purchases, and investments with a tax on unimproved land and natural resources. In The Traumatised Society, Fred Harrison  provides an exhaustive update of George’s original work.

As Winston Churchill famously observed, “History is written by the victors.” Nearly all history books written in the last 400 years were written by or on behalf of the ruling elite. The Traumatised Society is unique in that it recounts the history of the industrial revolution from the perspective of the 99%. Harrison also presents a simple, but elegant prescription for taking back power from the corporate oligarchy, ending economic inequality and the debt crisis, staving off ecological disaster, and preventing World War III. On the surface these claims appear extravagant and somewhat grandiose. Yet, in my view, Harrison makes his case very convincingly.

Adam Smith was the first prominent economist to propose the LVT as the most “moral” and least economically harmful tax in his classic Wealth of Nations. Neoconservative icon Milton Friedman also considered it the “least bad” kind of tax. The most famous contemporary Georgist is former World Bank Economist and Nobel Prize winner Joseph Stiglitz.

Basically the argument for an LVT goes as follows: because publicly funded infrastructure increases land values, this added value should return to the public. It shouldn’t return to the landowner, who has done nothing more than sit on his land. An LVT provides a valuable source of public revenue. It eliminates the need for governments to borrow from private banks without depleting the total wealth of the landowner.

Economies and personal freedom flourish wherever an LVT has been implemented. As Harrison reminds us, the economic surge known as the Asian Tiger didn’t start in China, but in Taiwan and Hong Kong – as a direct result of LVT-based economies. Moreover unlike China, economic growth in both Taiwan and Hong Kong has proved genuine and sustainable. In 2011, the per capita GDP of China was $8,400, while that of Taiwan was $37,900.

The Trauma of Cultural Genocide

The title The Traumatised Society is based on a severe dislocation Europeans experienced during the eighteenth century, a process remarkably similar to that of African slaves and indigenous people oppressed by colonization. The cause of this dislocation was The Enclosure Acts, a series of laws that drove our peasant ancestors off the communal farm lands that had supported them for a thousand years and fenced it to off as private property. In England alone, 160,000 freehold farmers were thrown off their land between 1700 and 1812. In addition to being stripped of their livelihood, our ancestors also experienced “cultural genocide,” as they lost a thousand years of cultural tradition linked to communal land ownership. This process is vividly described in the poems of 18^th century poet John Clare, whose parents ended up in the poor house (i.e. jail) after being thrown off their land. Clare’s work was suppressed until the late 19th century, when the work of American journalist Henry George revived the British land reform movement.

The end result of this massive dislocation has been slavery, debt, alienation, depression, poverty (which was virtually non-existent prior to the Industrial Revolution), murder, rape, child abuse and alcohol and drug addiction. Counselors and therapists who work with African American and indigenous communities are very much aware of the trauma, which is passed from generation to generation, that results from severe economic dislocation and cultural genocide. Ironically, however, Europeans have no historical memory that we have been subjected to the same kind of trauma.

According to Harrison, the “moral evolution” of the human race ceased in the 1700s. This is when an authentic human culture of cooperation and interdependence was replaced with an artificial “cheating culture,” in which the highest ideal is to get something for nothing. The modern, free market version of Christianity is part and parcel of this phony culture – as is Marxism. Harrison feels Marx did us a great disservice by demonizing capitalism. The capitalistic funding model in itself isn’t the primary source of our major economic and social problems.

The Concept of Economic Rents

The Traumatised Society is written in classical economic language, in which “rent” refers to unearned income from the monopolization of land, natural resources, or the cultural commons (e.g. the public airwaves and money). Economic rent includes unearned profit gained from selling land that has increased in value (often due to land speculation). A “rent-seeker” is someone who derives unearned income from monopolization of these resources.

For most of human history land and resources were owned communally and any “rent” or unearned income went to finance public services. Beginning in the 18th century, this all changed. When “rent-seekers” privatized land and natural resources, they also captured control of government and shifted the burden of funding public services to workers. In this way modern capitalist society came to be divided into two classes, the Predators or rent-seekers, and the Producers, who engage in work to create economic wealth.

As more and more wealth is extracted from Producers, both as “rents” and as taxes, there is less and less money available to maintain public infrastructure. Eventually the number of Producers becomes inadequate to support the Predator rent-seeking class. At this point, the latter seeks to remedy the problem by conquering new lands and colonizing new populations, by using fossil fuel technology to increase productivity, by borrowing and extracting wealth from future generations, and/or by capital depletion (liquidating assets created by past production – like Greece).

Originally published in Dissident Voice

To be continued.

The Mythology of Neoclassical Economics

Classical Economics as a Stratagem Against Henry George (free link)

By Mason Gaffney (2007)

Book Review-Part I

Why do American school children study the beliefs of a German radical named Karl Marx, the villain Americans love to hate? Yet Henry George, whose views on land and tax reform gave rise to the Progressive and Populist movements of the 1900s, is totally absent from US history books. During the 1890s George, author of the 1879 bestseller Progress and Poverty, was the third most famous American, after Mark Twain and Thomas Edison. In 1896 he outpolled Teddy Roosevelt and was nearly elected mayor of New York.

In Neo-classical Economics as a Stratagem Against Henry George (2007), University of California economist Mason Gaffney argues that George and his Land Value Tax pose a far greater threat than Marx to America’s corporate elite. America’s enormous concentration of wealth has always depended on the inherent right of the wealthy elite to seize and monopolize vast quantities of land and natural resources (oil, gas, forests, water, minerals, etc) for personal profit. Adopting an LVT would essentially negate that right. What’s more, every jurisdiction that has ever implemented an LVT finds it works exactly the way George predicted it would. Productivity, prosperity, and social well being flourish, while inflation, wealth inequality, and boom and bust recessions and depressions virtually vanish. (See prior post Facebook’s Billionaire Tax Refugee).

When Progress and Poverty first came out in 1879, it started a worldwide reform movement that in the US manifested in the fiercely anti-corporate Populist Movement in the 1880s and later the Progressive Movement (1900-1920). Many important anti-corporate reforms came out of this period, including the Sherman Antitrust Act (1890), a constitutional amendment allowing Americans to elect the Senate by popular vote (prior to 1913 the Senate was appointed by state legislators), and the country’s first state-owned bank, The Bank of North Dakota (1919).

The Corporate Elite Strikes Back

As with any major reform movement, the corporate backlash was predictable. In Neo-classical Economics, Gaffney reveals that this backlash took two main forms. The first was the Red Scare (1919-1989), overseen by J Edgar Hoover as Assistant Attorney General and later as FBI director. The second was more insidious and involved the deliberate reframing of the classical economic theory developed by Adam Smith, Locke, Hume, and Ricardo as so-called neoclassical economics. The latter totally negates Adam Smith’s basic differentiation between “land”, a limited, non-producible resource. and “capital”, a reproducible result of past human production. Smith, Locke, Hume, and Ricardo all held that individuals have no right to seize and monopolize scarce natural resources, such as land, minerals, water, and forests. They believed that because these resources are both limited and essential for human survival, they should belong to the public.

Neoclassical economics, which first developed in the 1890s, was based on the premise that growth and development can only occur if a handful of rent-seekers are allowed to monopolize scarce land and natural resources for their personal profit. Henry George, who publicly debated the early pioneers of neoclassical economics, claimed the science of economics was being deliberately distorted to discredit him. Gaffney agrees. Because George’s proposal to replace income and sales tax with single land value taxed is based on logical concepts of land, capital, labor, and rent advanced by Adam Smith, Locke, Hume, and Ricardo, they all had to be discredited.

Gaffney believes neoclassical economic theory undermines George’s arguments for a single Land Value Tax in two basic ways: 1) by claiming that land is no different from other capital (ironically Marx made the identical argument) and 2) by portraying the science of economics as a series of hard choices and sacrifices that low and middle income people must make. Some examples:

• If we want efficiency, we must sacrifice equity.
• To attract business, we must lower taxes and shut libraries and defund schools.
• To prevent inflation, we must keep a large number of Americans unemployed.
• To create jobs, we must destroy the environment and pollute the air, water, and food chain.
• To raise productivity, we must fire people.

Below, brief video of Gaffney discussing LVT:

To be continued.

Progress and Poverty: A Suppressed Economics Classic

Progress and Poverty

by Henry George (1879), edited and abridged by Bob Drake, Robert Shalkenbach Foundation (2006)

Downloadable as free PDF:Progress and Poverty

Book Review

Progress and Poverty is an economic classic which has been suppressed in the US owing to its subject matter: the elimination of poverty and economic inequality by restoring the Commons. Written over 130 years ago, the book provides uncanny insights for the current difficulties capitalism faces (i.e paralyzing recession, massive public and personal debt and growing income inequality). Internationally George’s economic theories are regarded as comparable to those of Marx, Keynes and Galbraith. Yet despite being the third most famous American in 1879 (after Edison and Mark Twain), George’s work remains largely unknown outside of Australia, New Zealand, Hong Kong and Taiwan.

Why Development Always Produces Poverty

George’s goal in writing Progress and Poverty is to explain, in economic terms, why material progress (i.e. economic development) is always accompanied by poverty and increasing inequality. Employing Adam Smith’s classical definitions of labor, capitol, wages and interest and Ricardo’s Law of Rent, he argues that development must always produce poverty and inequality so long as a privileged elite holds an exclusive monopoly on the ownership of land and basic resources.

George starts from the premise that land and natural resources are the source of all wealth, though wealth itself can only be created through human labor. According to George, the relative monopoly the elite hold on land allows them to capture all increases in productivity and production as “rent” increases.

The History of Land Privatization

George’s approach is relatively unique for political economists in his emphasis on the role ideology plays in the economic theories that gain popular acceptance. In contemporary society, no one questions the right of a privileged elite to monopolize land and natural resources for their own benefit. However private land (and resource) ownership is a relatively new concept originating in seventeenth century Britain with The Enclosure Act.

About a third of Progress and Poverty traces the historical evolution of private land ownership. In all human societies, the common right of all people to use the earth to support themselves has been sacrosanct. The concept of individual land ownership only emerged as societies advanced and either concentrated power in privileged classes or seized land and slaves through military conquest. Prior to the rise of Greek and Roman civilization, all land was communally owned and the notion of an individual claiming a patch of land as his exclusive possession was unthinkable.

Henry George sees the mass seizure of land by the nobility (in Rome this was referred to as the latifundia) as responsible for the death of democracy in these early societies and the ultimate collapse of both civilizations.

After the Roman Empire fell, feudalism was characterized by systems of communal and private property rights that operated in parallel. A feudal estate was considered to belong to society at large. The king, as the chief representative of the people, merely granted its use in trust to church leaders and military officers in return for services rendered to the commonwealth. Churches were expected to provide for the care and welfare of the sick and poor. For their part, feudal lords were expected to defend the king’s military interests.

Because they allowed the British system of private land ownership to persist in the US, George accuses the founding fathers of failing in their efforts to establish a true republic. Despite abolishing heredity titles and establishing the right to vote, they failed to reestablish the communal property rights that enabled the Greek and Roman democracies to flourish. He contends that political equality, when coexisting with wealth inequality, must always lead to either dictatorship or anarchy.

Restoring The Commons Through a Land Tax

George proposes that the wealth inequality, recessions and numerous other evils commonly attributed to the capitalist economic model could be totally eliminated by restoring public ownership of land and resources.

Rather than advocating outright government seizure of private land, he proposes to accomplish this by imposing a tax on unimproved land roughly equivalent to its rental value. Such a system would allow landholders to preserve their right of tenure, while discouraging them from speculating by holding land and resources out of production. While ending land speculation and recessions, this type of tax would simultaneously expand land and resource access for workers and capital investment. Any productivity increases (beyond interest on capital), would accrue to the government, rather than private landholders.

According to George, the government could use revenue from land and resource taxes to abolish taxes on wages and capital (which discourage production) and to pay down public debt.

A Novel Bipartisan Solution to the Economic Crisis

Re-Solving the Economic Puzzle

Walter Rybeck 2011

Book Review

What if there were a single, simple solution to the current credit/debt crisis? What if mere tax reform could end the recession, repay public debt, and reverse growing income inequality? What if this tax could also end real estate bubbles and speculation and reverse urban decay and sprawl? What if it could also make cities and states more financially self-reliant, thus reducing their reliance on federal subsidies and the size of federal government?

It all sounds highly improbable, doesn’t it? But Walter Rybeck, a former urban affairs official in the Johnson, Nixon and Carter administration, claims that widespread adoption of a  Land Value Tax (LVT) would accomplish all these objectives. What’s more, political thinkers across the political spectrum (e.g. Patrick Buchanan, Milton Friedman, Michael Hudson, Martin Luther King, Paul Krugman and Joseph Stigliz) have all spoken in favor of this type of tax reform.The LVT, which taxes unimproved land, dates from pre-revolutionary times. Prior to the enactment of the Federal Income tax in 1913, most public services were financed locally via an LVT. Progressives like it because it shifts the tax burden from small business and low and moderate income families to real estate developers and speculators. Conservatives like it because it shrinks the size and role of federal government, as well as leading to a reduction in company and income tax.

Here is what conservative free market economist Milton Friedman had to say about Land Value Tax (The Times Herald, Norristown, Pennsylvania; Friday, 1 December, 1978): “We need taxes. So the question is, which are the least bad taxes? In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”

Ending the Monopoly on Land Ownership

Like Henry George, author of the 1879 Progress and Poverty, Rybeck proposes to end the ruling elite’s monopoly on land and natural resources through tax reform – by gradually replacing income, company, sales, and property taxes with a tax on unimproved land and resources. As he explains in Re-Solving the Economic Puzzle, land is the ultimate source of all wealth. In the US 3% of the population own 95% of private land. Ted Turner alone owns two million acres, equivalent to nearly two Rhode Islands. In many cities, a few wealthy families own all the prime downtown sites.

Rybeck’s definition of land includes all the natural resources accompanying it – soil, forests, game, grazing rights, water, oil, gas, minerals and the electromagnetic waves (broadcast, cellphone, and wi-fi spectrum) above it. Like Henry George and modern Georgists, he argues that land and resources should be public property. Because no one produced any of this stuff, no one has a right to claim an exclusive monopoly over it.

According to Rybeck, our current system of taxing labor and productivity is grossly unfair to all but the top 1% of Americans. Besides being more equitable, the LVT also ends curbs the real estate speculation that leaves vast areas of American cities vacant. Setting land taxes too low inadvertently rewards landowners for keeping land vacant or turning it into parking lots.

High land vacancy rates were already a major problem during the Nixon administration. In 1970, cities with a population of 100,000 had a 22% vacancy rate, and those over 250,000 a 13% vacancy rate. Thanks to the 2008 economic crisis, an epidemic of vacant foreclosed homes has massively increased this urban blight. Worse still, low land taxes reward middle class families for moving to the suburbs. In doing so, they abandon expensive infrastructure (water, sewage, lighting, schools, etc) that was created to accommodate them. As they spread out into sprawling suburbs, taxpayers must fund new infrastructure.   

Cities and Countries Successfully Adopting an LVT

The final third of Re-Solving the Economic Puzzle relates the success stories of the 25 cities and five countries that have spared themselves economic disaster by adopting an LVT. The communities Rybeck singles out include

• California Irrigation Districts (1887)
• Fairhope Alabama (1894)
• Arden Delaware (1890)
• Cleveland (1901)
• Pittsburgh (1913, 1979)
• New York City (1918)
• Miami (Ohio) Conservancy (1929)
• Rosslyn Virginia (1950)
• Southfield Michigan (1960)\Harrisburg and 15 other Pennsylvania cities (1980-1990)

Sadly many of these communities subsequently caved in to special interests and began taxing capital improvements, rather than land values. Those who did so are confronting a major debt crisis, as well as decaying schools and infrastructure.

Pittsburgh, one of the backsliders, saw the error of their ways in 1979 and instituted a gradual return to what Rybeck refers to as a two-tier land tax. At present, Pittsburgh taxes unimproved land six times as heavily as improvements. The resulting revival of their central city is referred to as Renaissance II. Thanks to their Land Value Tax, Pittsburgh didn’t experience the same real estate bubble as other US cities. Thus their housing market didn’t collapse in 2008. In addition, their current foreclosure rate is the lowest in the country.

Countries which have adopted an LVT include Hong Kong (1843), New Zealand (1878), Denmark (1912), South Africa (1916) and Taiwan (1949).

To learn more about Land Value Tax, check out the LVT Facebook page.

Reprinted from Veterans Today