Cost
of Living
With each generation, the cost of living rises. This seems peculiar, given
the awesome increases in technology and productivity, the lower costs of many
goods which are made overseas, the lower costs of food relative to other items,
etc.
Yes,
even poor people own items that didn't exist 50 years ago, or were available
only to the wealthiest among us.
(Interestingly, Henry George spoke to this issue near
the beginning of Progress & Poverty,
so the same argument has been around for 125 years! He wrote,
in a footnote, "It is true that the poorest may now in certain
ways enjoy what the richest a century ago could not have commanded, but
this does
not show
improvement of condition so long as the ability to obtain the necessaries
of life is not increased. The beggar in a great city may enjoy many things
from which the backwoods farmer is debarred, but that does not prove
the condition of the city beggar better than that of the independent
farmer.")
But young people, particularly in our coastal states and urban areas, can't
afford to live in the towns in which they grew up. Nurses and retail sales
people and janitors can't afford to buy homes in many parts of the country,
and can't afford to rent in many others. Wages are not keeping up with the
cost of living. And our official poverty statistics don't begin to measure
this.
At the same time, wealth is becoming increasingly
concentrated into the top
few percent of the population, as is income.
Can this be changed? The thesis of this website is that, yes, it can, if we
come to understand that all of the benefits of
our technological
progress and
population growth and public
spending go to whomever gets to keep the rent on
land, and then recognize that we must
collect the rental value of land from
those who own land, particularly our urban
land.
Shifting our taxes off work and onto land values will help bring
down the price of land, making it affordable to those who need it. This
will make housing more affordable, allow potential entrepreneurs access
to the choice sites, and reduce the profitability of the FIRE
sector. Those businesses whose primary purpose is to serve as landlord,
however, will not favor this reform. Are they powerful enough to prevent
it? They have a lot to lose: not the rent on the buildings — that
is legitimately theirs, and wouldn't be taxed — but the locational
value, which is rightly our common asset.
What sort of world would you like your grandchildren to
live in? If you are in the landlord class, do you think you can provide all
of them enough protection
from those who are tenants or whose landholdings are of minimal value? What
sort of world do you want all of our grandchildren to live in?
Henry George: The Common Sense of Taxation (1881
article)
As to amount of taxation, there is no principle which imposes any arbitrary
limit. Heavy taxation is better for any community than light taxation, if
the increased revenue be used in doing by public agencies things which could
not be done, or could not be as well and economically done, by private agencies.
Taxes could be lightened in the city of New York by dispensing with street-lamps
and disbanding the police force. But would a reduction in taxation gained
in this way be for the benefit of the people of New York and make New York
a more desirable place to live in? Or if it should be found that heat and
light could be conducted through the streets at public expense and supplied
to each house at but a small fraction of the cost of supplying them by individual
effort, or that the city railroads could be run at public expense so as to
give every one transportation at very much less than it now costs the average
resident, the increased taxation necessary for these purposes would not be
increased burden, and in spite of the larger taxation required, New York
would become a more desirable place to live in. It is a mistake to condemn
taxation as bad merely because it is high; it is a mistake to impose by constitutional
provision, as in many of our States has been advocated, and in some of our
States has been done, any restriction upon the amount of taxation. A restriction
upon the incurring of public indebtedness is another matter. In nothing is
the far-reaching statesmanship of Jefferson more clearly shown than in his
proposition that all public obligations should be deemed void after a certain
brief term — a proposition which he grounds upon the self-evident truth
that the earth belongs in usufruct to the living, and that the dead have
no control over it, and can give no title to any part of it. But restriction
upon public debts is a very different thing from restriction upon the power
of taxation, and reasons which urge the one do not apply to the other. Nor
is increased taxation necessarily proof of governmental extravagance. Increase
in taxation is in the order of social development, for the reason that social
development tends to the doing of things collectively that in a ruder state
are done individually, to the giving to government of new functions and the
imposing of new duties. Our public schools and libraries and parks, our signal
service and fish commissions and agricultural bureaus and grasshopper investigations,
are evidences of this.
But while no limit can be properly fixed for the amount of taxation, the
method of taxation is of supreme importance. A horse may be anchored by fastening
to his bridle a weight which he will not feel when carried in a buggy behind
him. The best ship may be made utterly unseaworthy by the bad stowage of
a cargo which properly placed would make her the stiffer and more weatherly.
So enterprise may be palsied, industry crushed, accumulation prevented, and
a prosperous country turned into a desert, by taxation which rightly levied
would hardly be felt. ...
For, keeping in mind the fact that all wealth is the result of human exertion,
it is clearly seen that, having in view the promotion of the general prosperity,
it is the height of absurdity to tax wealth for purposes of revenue while
there remains, unexhausted by taxation, any value attaching to land. We may
tax land values as much as we please, without in the slightest degree lessening
the amount of land, or the capabilities of land, or the inducement to use
land. But we cannot tax wealth without lessening the inducement to the production
of wealth, and decreasing the amount of wealth. We might take the whole value
of land in taxation, so as to make the ownership of land worth nothing, and
the land would still remain, and be as useful as before. The effect would
be to throw land open to users free of price, and thus to increase its capabilities,
which are brought out by increased population. But impose anything like such
taxation upon wealth, and the inducement to the production of wealth would
be gone. Movable wealth would be hidden or carried off, immovable wealth
would be suffered to go to decay, and where was prosperity would soon be
the silence of desolation. ...
See how unjust and short-sighted is this system. Here is a man who, gathering
what little capital he can, and taking his family, starts West to find a
place where he can make himself a home. He must travel long distances; for,
though he will pass plenty of land nobody is using, it is held at prices
too high for him. Finally he will go no further, and selects a place where,
since the creation of the world, the soil, so far as we know, has never felt
a plowshare. But here, too, in nine cases out of ten, he will find the speculator
has been ahead of him, for the speculator moves quicker, and has superior
means of information to the emigrant. Before he can put this land to the
use for which nature intended it, and to which it is for the general good
that it should be put, he must make terms with some man who in all probability
never saw the land, and never dreamed of using it, and who, it may be, resides
in some city, thousands of miles away. In order to get permission to use
this land, he must give up a large part of the little capital which is seed-wheat
to him, and perhaps in addition mortgage his future labor for years. Still
he goes to work: he works himself, and his wife works, and his children work — work
like horses, and live in the hardest and dreariest manner. Such a man deserves
encouragement, not discouragement; but on him taxation falls with peculiar
severity. Almost everything that he has to buy — groceries, clothing,
tools — is largely raised in price by a system of tariff taxation which
cannot add to the price of the grain or hogs or cattle that he has to sell.
And when the assessor comes around he is taxed on the improvements he has
made, although these improvements have added not only to the value of surrounding
land, but even to the value of land in distant commercial centers. Not merely
this, but, as a general rule, his land, irrespective of the improvements,
will be assessed at a higher rate than unimproved land around it, on the
ground that "productive property" ought to pay more than "unproductive
property" — a principle just the reverse of the correct one, for
the man who makes land productive adds to the general prosperity, while the
man who keeps land unproductive stands in the way of the general prosperity,
is but a dog-in-the-manger, who prevents others from using what he will not
use himself.
Or, take the case of the railroads. That railroads are a public benefit
no one will dispute. We want more railroads, and want them to reduce their
fares and freight. Why then should we tax them? for taxes upon railroads
deter from railroad building, and compel higher charges. Instead of taxing
the railroads, is it not clear that we should rather tax the increased value
which they give to land? To tax railroads is to check railroad building,
to reduce profits, and compel higher rates; to tax the value they give to
land is to increase railroad business and permit lower rates. The
elevated railroads, for instance, have opened to the overcrowded population
of New
York the wide, vacant spaces of the upper part of the island. But this great
public benefit is neutralized by the rise in land values. Because these vacant
lots can be reached more cheaply and quickly, their owners demand more for
them, and so the public gain in one way is offset in another, while the roads
lose the business they would get were not building checked by the high prices
demanded for lots. The increase of land values, which the elevated roads
have caused, is not merely no advantage to them — it is an injury;
and it is clearly a public injury. The elevated railroads ought
not to be taxed. The more profit they make, with the better conscience can
they be
asked to still further reduce fares. It is the increased land
values which they have created that ought to be taxed, for taxing them will
give the public
the full benefit of cheap fares. ... read
the whole article
Rev. A. C. Auchmuty: Gems from George, a
themed collection of
excerpts from the writings of Henry George (with links to sources)
THE mode of taxation is quite as important as the amount. As a small burden
badly placed may distress a horse that could carry with ease a much larger
one properly adjusted, so a people may be impoverished and their power of
producing wealth destroyed by taxation, which, if levied in another way,
could be borne with ease. — Progress & Poverty — Book
VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the
Canons of Taxation
IF we impose a tax upon buildings, the users of buildings must finally pay
it, for the erection of buildings will cease until building rents become
high enough to pay the regular profit and the tax besides. If we impose a
tax upon manufactures or imported goods, the manufacturer or importer will
charge it in a higher price to the jobber, the jobber to the retailer, and
the retailer to the consumer. Now, the consumer, on whom the tax thus ultimately
falls, must not only pay the amount of the tax, but also a profit on this
amount to everyone who has thus advanced it — for profit on the capital
he has advanced in paying taxes is as much required by each dealer as profit
on the capital he has advanced in paying for goods. — Progress & Poverty — Book
VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the
Canons of Taxation
THE way taxes raise prices is by increasing the cost of production, and checking
supply. But land is not a thing of human production, and taxes upon rent cannot
check supply. Therefore though a tax on rent compels the landowners to pay
more, it gives them no power to obtain more for the use of their land, as it
in no way tends to reduce the supply of land. On the contrary, by compelling
those who hold land on speculation to sell or let for what they can get, a
tax on land values tends to increase the competition between owners, and thus
to reduce the price of land. — Progress & Poverty — Book
VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons
of Taxation
... go to "Gems from George"
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
II. THE SINGLE TAX AS A FISCAL REFORM
1. DIRECT AND INDIRECT TAXATION
Taxes are either direct or indirect; or, as they have been aptly described, "straight" or "crooked." Indirect
taxes are those that may be shifted by the first payer from himself to others;
direct taxes are those that cannot be shifted.5
The shifting of indirect taxes is accomplished by means of their
tendency to increase the prices of commodities on which they fall. Their magnitude
and incidence 6 are thereby disguised. It was for this reason that a great
French economist of the last century denounced them as "a scheme for
so plucking geese as to get the most feathers with the least squawking."7 ... read the book
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q19. Why should buildings and all other improvements and personal property
and capital be exempt from taxes?
A. Because a tax on them falls upon industry, and so increases the cost of living,
while continuing the invidious exemption of the present net land value.
Q45. Why tax $1,000 invested in a vacant lot while exempting $1,000
invested in New York Central stock?
A. Because: (1) the land is made worth $1,000 and so maintained at public expense
without any contribution from the owner; (2) the $1,000 New York Central stock
adds nothing to the public expense, but a tax upon it, if collected at the source,
falls directly on the road and thence upon the public, and so adds to the cost
of living.
... read the whole article
Mason Gaffney: Land as a
Distinctive Factor of Production
Land normally does not
depreciate as a function of time. Most
attributes of land also withstand use and abuse. Most land is,
rather, expected to appreciate in real value in the long run.
Values go in cycles, but the secular history is upwards as population,
capital, and demands all grow while land remains fixed. Capital
has
a period of formation during which it accretes value by storing up
other
inputs and changing physical form, but that is a phase. Once
formed, almost all capital fails with time.
Perhaps the most durable capital is intellectual, like the
writings of
Plato. These, however, do not endure generations without the
continual human effort and expense of education. As schools
starve
and libraries close, it is sadly certain that much will be lost.
Under any conditions much is twisted in transmission, like classical
economics itself. ...
... It follows that the demand for land arises over time with
incomes, but
faster than incomes. Read
the whole article
William F. Buckley, Jr.: Home
Dear Home
So why is the cost of housing so high?
We learn that the average new house nationwide now sells for nearly $300,000.
The writer tells us, "I asked (a builder) what our children -- my
kids are both under 8, I told him -- would be paying when they're ready
to buy.
"'They're going to live with us until they're 40,' (the builder) said
matter-of-factly. 'And when they have their second kid, then we'll finally
kick them out and make them pay for the house that we paid for. And that
house will cost them 45 to 50 percent of their income.'"
Such data are dismaying, but perspective helps. "In Britain," the
builder explains, "you pay seven times your annual income for a home;
in the U.S. you pay three and a half." The Brits get 330 square feet per
person in their homes; Americans, 750 square feet. But choice parts of the
United States face "build-out." Consider New Jersey. It currently
averages 1,165 people per square mile -- denser than India (914) and Japan
(835).
And we confront, finally and inevitably, the question: What is to be done
about it?
Almost without exception, housing specialists concur, high home prices are
owing to zoning. Twenty years ago, in many quarters of the country, one
year would go by before the political authority would permit a developer
to begin
housing construction. In New Jersey, that interval now approaches eight
years. Delays of that kind have the effect of shrinking the amount of land
on which
houses can be constructed. We get the inflated costs so familiar. "(Some
authorities) used sample prices from 25 areas to show that the cost of housing
in a metropolitan area appears to be in direct correlation to its degree of
zoning ordinances," Gertner writes.
This is a politically remote source of trouble. People who have to wait for
a zoning agency to change its conventions, regulations, traditions and idiosyncrasies
will be very old before they acquire a new home.
Henry George, the eminent social philosopher of a century ago, turned the
attention of planners and economists, however briefly, to the indefeasible
factor of land scarcity. Capital and labor can increase; land cannot. ... ... read the whole
column
Mason Gaffney: The Red and the
Blue
To
understand the politics of New York City or San Francisco we need to
begin by noting that they have about the highest residential rents and
home prices in the U.S.A., along with the highest tenancy rates. It
takes a high monetary income even to be poor in such places, unless you
own land. Federal statisticians who publish the Consumer
Price Index
(CPI) delicately refrain from comparing different cities - they just
compare different times, city by city. This helps them finesse tough
questions about rents, and housing prices. Common observation, however,
and various semi-popular publications, fill the gap. The C.O.L.,
especially its rent and home value elements, is a lot higher in the big
glamorous cities, so real incomes there are a lot lower than they look
- unless you own land.
The City of Los Angeles in early December, 2004, condemned an
apartment
building in “south central,” the toughest slum area, to drive out
violent gangs who make it their base and terrorize the
neighborhood. Were the other tenants grateful? No, they
protested. “Where else can I rent for $600,” bemoaned one with a
mistress and child, clinging to a one-bedroom place with a “ratty
carpet, broken tiles, and roaches.”
“The People’s Republic of Santa Monica,” so-called by wags, has
about
the highest land values per square foot in the U.S.A. Its
enviable location is hard to beat. It also has a high rate of tenancy,
and a City Council swayed by organized tenants. Color it blue: the
tenants vote. Read the whole
article
Jeff Smith and Kris Nelson: Giving
Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any
one
thing and find it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums, farmland loss,
political favoritism, and unearned equity with disrupted neighborhood
tenure. Echoing Thoreau, the more familiar reforms have failed to
address this many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base -- from
buildings to land -- must seem like the epitome of unfounded faith. Yet
the evidence shows that state and local tax activists do have a
powerful, if subtle, tool at their disposal. The "stick" spurring
efficient use of land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding efficient use of land
is a lower or zero tax rate upon improvements. ...
The other potentially supportive
businesses -- service providers -- do
not consume much in the way of resources or prime locations. Even
service providers on valuable sites, were they to pay more, could still
come out ahead in the better business climate of zero taxes on sales,
on paid wages, on customers' income, and of less onerous mortgage.
Presently taxes and mortgages consume
about 65% of the average worker's
income, drastically reducing discretionary spending. ...
A big
problem needs a big solution which in turn needs a
matching shift of our prevailing paradigm. Geonomics -- advocating that
we share the social value of sites and natural resources and untax
earnings -- does just that. Read the whole article
Jeff Smith: Planning by
Markets
Taxes -- an aspect of politics,
not markets -- motivate misuse of
land.
- The tax on buildings
discourages maintenance and breeds slums (Lynn 1973). After the
neighborhood really goes down hill and the owner has milked every last
penny out of the structure, he just walks away. Thus urban cores decay
(Pickard 1966), an entropy that seems inevitable yet is policy-induced(1).
- In growing areas, custom
design creates more valuable homes, hence more tax liability. To
avoid the penalty, developers can under-build or sacrifice esthetics.
Cookie-cutter developments all in a row reduce built value and property
taxes(2).
- Taxing sales raises the
cost of living while taxing income lowers the ability to afford to live.
Like a vise, regressive taxes squeeze out the discretionary income of
the poor who cannot afford the city they may like. Necessity crams them
into the structures that cut corners.
While taxes are creatures of
legislatures, ground rent is a
phenomenon of markets. What's political is what we do with it.
Most of us forget it's there, letting it reward speculation and
sprawl. ... Read the whole article
Herbert J. G. Bab: Property
Tax -- Cause of Unemployment (circa 1964)
When analysing property taxes we
shall distinguish between that part of
the tax which is assessed on improvements and that part which is
assessed on land.
That part of the tax that is assessed on buildings penalizes
everybody
who improves his land, his buildings or intends to construct
residential, commercial or industrial property. The most serious
incidence of property taxes is on new housing. When rental property or
houses are newly constructed these taxes add 15 to 20% to the annual
cost depending on assessment practices and tax rates.
"In 1962 property taxes on new F.H.A. insured houses averaged $14.30
per month, or $171.60 per year, excluding that part of the tax that was
assessed on the land. Assuming that a family
spends 20% of its income
on housing, the income of a family must increase by $858 per
year in
order to afford the purchase of a home. In this way many families in
the lower income group are priced, or taxed, out of the market. And
residential construction, a mainstay of our economy, is discouraged."
"In 1963 HOUSING STARTS reached a level of 1.6 million units,
representing a value of about $20 billions. Yet very few houses were
built in the central areas of our cities and a large part of these
houses were built for families in the middle or upper income group. Of
these single-family homes, only 15% were sold for less than $12,500.
Another 15% sold for between $12,500 and $15,000. Thus 70% of these
homes cost $15,000 or more. This is so because under our income tax
laws property taxes and interest charges are deductible items. A person
in the 75% bracket pays only 25% of these costs and a person in the 50%
bracket pays only half the property taxes and half the interest
charges."
The steep increase in the level
of rentals represents a true and
accurate yardstick of our housing shortage. During the period 1950 to
1961
- the average rental rose from $71.13 per month to $186.79
or by
160%.
- During the same period median urban family income rose
from
$3,497 to $5,924 or by only 69%.
- Construction costs per square foot rose
from $8.68 in 1950 to $11.32 in 1961 or by only 30.4%.
The ever widening gap between
the level of rentals and the urban family income constitutes a rental
squeeze, which has brought untold misery and hardship to families in
the lower income group, especially to those belonging to minority
groups. The rental squeeze has also aggravated overcrowding and slum
conditions.
In the
press, on the radio and on television we are often warned about the
threat of inflation. Hardly ever are we told, that the increase in the
cost of living is to a large extent due to the increase in housing
costs brought about by the housing shortage.Read
the whole article The
inflationary
effects of property taxation are reinforced by the fact that property
taxes themselves are included in the cost of living index and that
property tax rates have the tendency to rise.
The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath
(Ireland): Back to the Land
(1881)
Higher Money Wages but Lower
Purchasing Power.
Does it therefore follow that the strong, widespread and
permanent
feeling of discontent which prevail among the labourers is the result
of fancy or imagination, having no solid foundation whatever in
fact?
Undoubtedly this feeling proves
the labourers to have substantial
grievances, although I think they have failed to trace them to the
causes that have really produced them. The
money wage of the English
operative is now considerably higher than in any past period of
English history. But if his money wage is now high, the price of the
raw products of the soil, that is to say, of the necessaries and
comforts of life, is vastly higher still.
A given amount of money will not
now procure for him the same
quantity of food and of the other necessaries of life as formerly. In
purchasing the raw products of the soil, he must pay not only for the
necessaries and comforts of life which he enjoys himself, but also
for the comforts and luxuries which go to the enjoyment of the owners
of the soil. The price, therefore, of the raw products is a payment
and a tax; a payment for what he consumes himself, and a tax for what
is consumed by others.
Then again, a vast margin of the
earnings of the English people is
expended in direct and indirect taxation. The public burdens of every
nation fall mainly on the vast masses of that nation, and the
operatives of England are the vast masses of the English nation.
If the English operatives could
only retain for their own use and
benefit the vast sums which, under the existing system of Land
Tenure, go on the one hand to the owners of the soil, and the sums
that an economical system of taxation would save for them on the
other, their material comforts and enjoyments would be multiplied a
hundred fold. Under the existing state of things their condition is
utterly incapable of any improvement in the future. Read the whole letter
Weld Carter: An Introduction
to Henry George
Another area in which George
applied these inherent differences
between land and products was the field of taxation. To determine the
incidence of taxation, George had to know what was to be taxed,
products or the value of land. In each case he traced out the effect
from the essential nature of the thing to be taxed: "...all taxes
upon things of unfixed quantity increase prices, and in the course of
exchange are shifted from seller to buyer, increasing as they go.
...If we impose a tax upon buildings, the users of buildings must
finally pay it, for the erection of buildings will cease until
building rents become high enough to pay the regular profit and the
tax besides. ...In this way all taxes which add to prices are shifted
from hand to hand, increasing as they go, until they ultimately rest
upon consumers, who thus pay much more than is received by the
government. Now, the way taxes raise prices is by increasing the cost
of production, and checking supply. But land is not a thing of human
production, and taxes upon...[land value] cannot check
supply. Therefore, though a tax on...[land value] compels the
land owners to pay more, it gives them no power to obtain more for
the use of their land, as it in no way tends to reduce the supply of
land. On the contrary, by compelling those who hold land on
speculation to sell or let for what they can get, a tax on land
values tends to increase the competition between owners, and thus to
reduce the price of land."
Here, then is another derivative difference between land and
products, according to George: taxation on products causes an
increase in the price of products; taxation on the value of land
causes a drop in the price of land. ... read
the whole article
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