An interesting article appears in the February 6 Sydney Morning Herald. It comments on the inability of the major economic theories to predict recessions such as the current one. It remarks on Prime Minister Kevin Rudd's economic stimulus package, though it might as well have been directed at Barack Obama's - in search of an economic theory to support it.
I loved where it points out that, "Economics is far too political, and its practitioners far too personally invested. They already know what causes recessions - the left knows it's the policies of the right and the right knows it's the left."
But, more importantly, it points out how the economic effects of land are disregarded. It describes the pervasive role of land in all major economies. While the article does not endorse LVT, or even mention it, it is a great reminder that land is a necessary factor of production and not a form of capital.
It would have been nice if they had mentioned Henry George's view of political economy and the critical role of land, but then again, they were looking for some justification for government intervention, which George's Single Tax simply does not provide.
It sadly reminds me of the results of a quiz I offered to members of the local Libertarian party a couple months ago. One question asked what the essential role of the government was in the economy. Most who took the quiz tried to come up with some role. As I recall, only one person answered that there was no essential role for government. Economies exist both before and without government intervention quite nicely.
Just as sadly, it seems that a large majority of people out there believe the government must act to save the economy - that the recession is a failure of the free market. I'd be happy if I could just find an example of a free market. If the exchange of goods is subject to a sales tax, it is not a free market. If the employment of others in order to produce, distribute, or sell goods is taxed, it is not a free market. Any market subject to involuntary government regulation, inspection, or licensing is not free. If inventory or capital is taxed, the market is not free. What's left?
Monday, February 16, 2009
Claverton Energy Research Group endorses LVT
The Claverton Group (a UK association of energy, environmental, transportation, and academic institutions) proposed a nationwide switch to LVT as a resolution to the current economic crisis. A resolution passed at the November 2008 meeting of the Coalition for Economic Justice reads:
“The current economic crisis highlights, again, the inadequacies of the economic system which is unstable and deeply flawed. It is clear that events are demonstrating the common feature of repeated economic booms and depressions in the speculative rise in land prices.
In order to address this problem we need to suggest to the wider world that it is possible to create a new approach that delivers both economic justice and prosperity for all. This solution must be based upon the annual collection of land value for public purposes.
This meeting agrees that there is an urgent need to convince policy makers of this, and for them to develop (with our assistance) policies to capture unearned land values. Such policies would enable taxes on labour and enterprise to be minimised. Investment in necessary public infrastructure would thus be recovered for public benefit.
We believe, however, that it is unproductive at this stage for our respective groups to attempt to agree how to achieve this. An agreement by the main parties on the need for a nation-wide tax on the value of land would trigger completion of the registration and valuation of land within a single parliament. We therefore commit to trying to persuade all parties to agree to this being a manifesto commitment.”
The last paragraph of the resolution is particularly interesting because it points out how LVT can be supported by a variety of groups that may otherwise have little in common. The same is potentially quite true here. Virtually all political parties have an interest in a switch to LVT. Liberals can appreciate that government funding need not be reduced. Conservatives can appreciate that tax collection costs and the size of government could be greatly reduced. Libertarians can appreciate the reduction in the size of government as well as the greater protection of individual property rights and the reduced government interference in the free market. Greens can appreciate the reduction of urban sprawl. Remember that when Henry George ran for Mayor of New York, he did so as a Labor Party candidate. Why was that? His single tax on the value of land would have eliminated all taxes on labor. See my website for endorsements of LVT from across the political spectrum.
Locke and Franklin revisited
A great article, "Stupid Property Owners", by Gavin Putland at the Land Values Research Group site, reminds us of something John Locke said:
"It is in vain in a country whose great fund is land to hope to lay the publick charge of the Government on anything else; there at last it will terminate. The merchant (do what you can) will not bear it, the labourer cannot, and therefore the landholder must: and whether he were best to do it by laying it directly where it will at last settle, or by letting it come to him by the sinking of his rents, ... let him consider."
One of Adam Smith's canons of taxation was that the burden of taxation should be as direct as possible. Putland's article reviews the collateral costs involved in taxing anything other than the value of land.
As our own Benjamin Franklin once said, "Our legislators are all landowners, and they are not yet persuaded that all taxes are finally paid by the land ... therefore, we have been forced into the mode of indirect taxes. ...All the property that is necessary to a man for the conservation of the individual and the propagation of the species, is his natural right which none may justly deprive him of; but all property superfluous to such purposes is the property of the public.”
"It is in vain in a country whose great fund is land to hope to lay the publick charge of the Government on anything else; there at last it will terminate. The merchant (do what you can) will not bear it, the labourer cannot, and therefore the landholder must: and whether he were best to do it by laying it directly where it will at last settle, or by letting it come to him by the sinking of his rents, ... let him consider."
One of Adam Smith's canons of taxation was that the burden of taxation should be as direct as possible. Putland's article reviews the collateral costs involved in taxing anything other than the value of land.
As our own Benjamin Franklin once said, "Our legislators are all landowners, and they are not yet persuaded that all taxes are finally paid by the land ... therefore, we have been forced into the mode of indirect taxes. ...All the property that is necessary to a man for the conservation of the individual and the propagation of the species, is his natural right which none may justly deprive him of; but all property superfluous to such purposes is the property of the public.”
Wednesday, February 11, 2009
Changing the debate
LVT represents a paradigm shift in raising public revenue. Current methods of taxation pit groups against each other. For any public project or benefit, those that benefit rarely pay the bill. It is an art among politicians to provide for their constituents or certain voting blocs by obtaining funding for their pet projects from other groups. Few care to pay for their own benefits. If that were the case, far more people would realize that they could achieve their goals through free-market channels far more economically than through government programs.
But the most disturbing thing about the most popular methods of raising government revenue is that they tend to discourage the very things we should be encouraging. Sales taxes hamper exchange. Exchange is a good thing. The best encouragement we could give to acts of exchange is to remove any interference in the form of taxation. Sales taxes also incur deadweight losses - the cost in lost sales is more than the benefit in raised revenues.
Income taxes are no better. They discourage increased labor and reduce jobs. Flat rate income taxes place an inordinate burden on those with low incomes. Progressive income taxes put an increasing burden on the most productive people. Both are bad. Efforts to create a more "fair" income taxes have resulted in a tax code too large and too intricate for anyone to completely understand.
Property taxes, as currently administered, penalize investment and improvements. Yet those are the very things we want and need. Remove the penalty from property improvements and jobs are created. That's why politicians create abatements and tax increment financing deals for the politically connected.
So, sales, income, and property taxes discourage exchange, labor, and job creation. On the other hand, LVT removes the burden of taxation from exchange, allows labor and capital to receive their full reward, and actually encourages improvements.
Better yet, we no longer tax the "rich" to pay for poor relief, we no longer tax everyone to provide corporate welfare, and we reduce the political favoritism that plays such a large part in our current tax policies. Taxes are no longer taken from productive behavior, but from the community-created value inherent in the value of land. Recovering the value created by the community, and using it to provide greater community benefits, is the only fair tax.
Under LVT, government revenue and spending become relatively fixed, increasing or decreasing only as land values rise and fall. With good governance, they will rise. With poor governance, they will fall. Arguments over whether to tax more or less, or to spend more or less, become moot. The only question becomes, how do we best provide for the entire community? If government actions reduce land values, the impact becomes obvious.
In truth, government programs become self-funding. Provide well-maintained roads, good schools, low crime, quality fire protection, clean air, and clean water; land values will rise. Failure to provide these things will only reduce land values.
What few understand is that, under current tax policies, we pay twice for these things. Good services raise land values. If that value is not recovered by the community, it will go to the land owner, who did not create the value. Then you pay again for the services in sales, income, and property taxes.
But, again, the question becomes, not which group to tax in order to pay for another group's benefit, nor whose taxes to reduce in order to lessen the negative effects of our current tax policies, but what can we do to benefit the whole community? How can we best use the value the community has created?
Homeowners will no longer be asked to bear the burden of providing the money for schools. Smokers will no longer be asked to bear the burden of providing health care for the poor. Diners will no longer be asked to bear the burden of building a new stadium. Productive individuals will no longer be asked to bear the burden of those who produce nothing. Providing the best services with the greatest efficiency would be the common goal. Competitive communities would likely opt to reduce services in order to provide basic functions well.
But the most disturbing thing about the most popular methods of raising government revenue is that they tend to discourage the very things we should be encouraging. Sales taxes hamper exchange. Exchange is a good thing. The best encouragement we could give to acts of exchange is to remove any interference in the form of taxation. Sales taxes also incur deadweight losses - the cost in lost sales is more than the benefit in raised revenues.
Income taxes are no better. They discourage increased labor and reduce jobs. Flat rate income taxes place an inordinate burden on those with low incomes. Progressive income taxes put an increasing burden on the most productive people. Both are bad. Efforts to create a more "fair" income taxes have resulted in a tax code too large and too intricate for anyone to completely understand.
Property taxes, as currently administered, penalize investment and improvements. Yet those are the very things we want and need. Remove the penalty from property improvements and jobs are created. That's why politicians create abatements and tax increment financing deals for the politically connected.
So, sales, income, and property taxes discourage exchange, labor, and job creation. On the other hand, LVT removes the burden of taxation from exchange, allows labor and capital to receive their full reward, and actually encourages improvements.
Better yet, we no longer tax the "rich" to pay for poor relief, we no longer tax everyone to provide corporate welfare, and we reduce the political favoritism that plays such a large part in our current tax policies. Taxes are no longer taken from productive behavior, but from the community-created value inherent in the value of land. Recovering the value created by the community, and using it to provide greater community benefits, is the only fair tax.
Under LVT, government revenue and spending become relatively fixed, increasing or decreasing only as land values rise and fall. With good governance, they will rise. With poor governance, they will fall. Arguments over whether to tax more or less, or to spend more or less, become moot. The only question becomes, how do we best provide for the entire community? If government actions reduce land values, the impact becomes obvious.
In truth, government programs become self-funding. Provide well-maintained roads, good schools, low crime, quality fire protection, clean air, and clean water; land values will rise. Failure to provide these things will only reduce land values.
What few understand is that, under current tax policies, we pay twice for these things. Good services raise land values. If that value is not recovered by the community, it will go to the land owner, who did not create the value. Then you pay again for the services in sales, income, and property taxes.
But, again, the question becomes, not which group to tax in order to pay for another group's benefit, nor whose taxes to reduce in order to lessen the negative effects of our current tax policies, but what can we do to benefit the whole community? How can we best use the value the community has created?
Homeowners will no longer be asked to bear the burden of providing the money for schools. Smokers will no longer be asked to bear the burden of providing health care for the poor. Diners will no longer be asked to bear the burden of building a new stadium. Productive individuals will no longer be asked to bear the burden of those who produce nothing. Providing the best services with the greatest efficiency would be the common goal. Competitive communities would likely opt to reduce services in order to provide basic functions well.
Rochester City Council to consider LVT
DEVELOPMENT: Rochester's new land rush?
The Rochester City Newspaper reports on the benefits of Land Value Taxation and a planned presentation to the City Council. An interview with a local LVT advocate points out how current property tax policies discourage investment, while LVT only encourages investment and improvements.
Tuesday, February 10, 2009
Taxation rules distort the way the market operates
A great letter to the editor of the Financial Times. Governments blame current problems on the free market, though they are anything but free under current tax policies, both here and overseas. The distortionary effects of income and sales taxes are incredible. Just more of the many problems governments create, then claim they must intervene in order to fix.
Sunday, February 8, 2009
Thomas Paine
I've always been a huge fan of Thomas Paine. I've read everything that I could get my hands on that he wrote. A true libertarian - a defender of individual rights. He came here from England, did his part to support our Revolution, then went to France to do it all over again. Not content to battle man's tyranny over other men, he went on to fight against religious tyranny over men's souls.
Yet, one of his writings, Agrarian Justice, always seemed a little out of place. I never made proper sense of it until I read Henry George's Progress and Poverty. Only then did I truly understand the fund that Paine felt should be subject to taxation - the same fund George outlined so clearly. The same fund that Adam Smith and a host of other classical economists considered to be rightfully subject to taxation. LVT is not a tax that punishes, but a tax that corrects an ongoing wrong. Better yet, for free-market advocates, it is a tax that does not burden exchange.
In Paine's words, "Cultivation is at least one of the greatest natural improvements ever made by human invention. It has given to created earth a tenfold value. But the landed monopoly that began with it has produced the greatest evil. It has dispossessed more than half the inhabitants of every nation of their natural inheritance, without providing for them, as ought to have been done, an indemnification for that loss, and has thereby created a species of poverty and wretchedness that did not exist before.
"In advocating the case of the persons thus dispossessed, it is a right, and not a charity, that I am pleading for. But it is that kind of right which, being neglected at first, could not be brought forward afterwards till heaven had opened the way by a revolution in the system of government. Let us then do honor to revolutions by justice, and give currency to their principles by blessings."
A century later, George showed how this applied, not just to agricultural lands, but to all land subject to exclusive ownership, especially in the cities and centers of commerce. Further, as much an advocate of individual rights as Paine, George wanted to end all other forms of taxation. What you produce is yours to do with as you wish. You are free to earn all you can from your physical and intellectual labors. The product of your labor is yours to save, use, sell, or bequeath as you choose. No one, and no government, has any right to any part of what is rightfully yours.
To the extent that any one, or any government, lays claim to the product of another's labor, slavery still exists.
Yet, one of his writings, Agrarian Justice, always seemed a little out of place. I never made proper sense of it until I read Henry George's Progress and Poverty. Only then did I truly understand the fund that Paine felt should be subject to taxation - the same fund George outlined so clearly. The same fund that Adam Smith and a host of other classical economists considered to be rightfully subject to taxation. LVT is not a tax that punishes, but a tax that corrects an ongoing wrong. Better yet, for free-market advocates, it is a tax that does not burden exchange.
In Paine's words, "Cultivation is at least one of the greatest natural improvements ever made by human invention. It has given to created earth a tenfold value. But the landed monopoly that began with it has produced the greatest evil. It has dispossessed more than half the inhabitants of every nation of their natural inheritance, without providing for them, as ought to have been done, an indemnification for that loss, and has thereby created a species of poverty and wretchedness that did not exist before.
"In advocating the case of the persons thus dispossessed, it is a right, and not a charity, that I am pleading for. But it is that kind of right which, being neglected at first, could not be brought forward afterwards till heaven had opened the way by a revolution in the system of government. Let us then do honor to revolutions by justice, and give currency to their principles by blessings."
A century later, George showed how this applied, not just to agricultural lands, but to all land subject to exclusive ownership, especially in the cities and centers of commerce. Further, as much an advocate of individual rights as Paine, George wanted to end all other forms of taxation. What you produce is yours to do with as you wish. You are free to earn all you can from your physical and intellectual labors. The product of your labor is yours to save, use, sell, or bequeath as you choose. No one, and no government, has any right to any part of what is rightfully yours.
To the extent that any one, or any government, lays claim to the product of another's labor, slavery still exists.
Former Indy Mayor supporting LVT?
Former Indianapolis Mayor Bill Hudnut entered a post on the Urban Land Institute's blog, The Ground Floor, supporting an increase of the tax on land while reducing the tax on improvements - a Pittsburgh-style land value tax. He refers to a 1972 Urban Land Institute Research Monograph that studied Australia's use of site value taxation, and a quote from Mason Gaffney (see Links). While it is refreshing to see a politician with Hoosier roots endorsing LVT, it is a shame he did not go a little farther back in its history. Even Pittsburgh began using the two-tier tax system in the early part of the last century, though not to any great effect until they increased the difference between the two rates.
Poll
Be sure and take the poll. Hint: the correct answer is not land value taxation. That is part of the beauty of land value taxation - it removes the burden of taxation from economic exchange. All other commonly used forms of taxation do hamper exchange. Hampering exchange is a bad thing. Our Founding Fathers had the right idea. The Constitution may have funded the federal government through tariffs and excise taxes, but the original Articles of Confederation did not. Be sure and check the link to "Saving Communities", which delves deeply into the original mechanism for funding the federal government and calls for a return to the "Founder's Plan".
Welcome!
Welcome to the Lower Taxes to the Ground blog! Soon we will be posting news items. For now, spend some time viewing the links.
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