• First, generous capital consumption allowances (CCAs) greatly magnify the proportion of real estate income taken as taxable capital gains. Capital gains accrue not only on newly constructed buildings, of course, but also on land and old buildings being sold and resold. Our tax code allows for properties to be re-depreciated by their new owners after a sale or swap, permitting real estate investors to recapture principal again and again on the same structure. When CCAs have been excessive relative to true economic depreciation, as they were during the 1980s, capital gains have been commensurately larger than the actual increase in property prices. As Charts la and lb illustrate, capital consumption allowances in real estate dwarf those in other industries.

• Second, very little of real estate cash flow is taxable as ordinary income, so the capital gains tax is currently the only major federal levy paid by the real estate industry. CCAs and tax-deductible mortgage interest payments combine to exempt most of real estate cash flow from the income tax. This encourages debt pyramiding as it throws the burden of public finance onto other taxpayers.

• Wages of general building construction workers rose 14 percent a year.
• Wages of special trade construction workers rose 11 percent a year.
• Construction material costs rose 11.5 percent a year.
• Combined wage-materials-managerial costs for residential building rose 12.5 percent a year.
• Fuel and utility costs for housing rose 13.8 percent a year. All of these costs closely tracked the Consumer Price Index which, over these same 30 years, rose by 12 percent a year. According to those figures, housing prices and housing rents apparently were held in check

• How to explain that, during the last decade of my research period, U.S. households with serious housing problems increased from 19 to 24 millions?
• What caused the portion of renters paying more than 35 percent of their income for housing doubled from 21 to 41 percent during the last two decades of the study period?
• Why were over 2.4 million renters paying 60 percent or more of their income for rent?

Bill Batt: Painless Taxation

Abstract
Real tax reform could do away with those taxes that are resented by the large proportion of our population. We could replace all taxes on wages and on interest by instead taxing economic rent. Rent is windfall income; it is income that arises not from the efforts of any person or corporation; it comes about as a surplus gain from common social enterprise. There is ample moral warrant for society to lay claim to that which it has created, as well as to that which no individual or party has earned. Analysis increasingly makes clear that economic rent in all its forms is far larger than official government figures indicate; in fact it is likely sufficient to supplant all current taxes on labor and capital (wages and interest) which are acknowledged to have so many negative effects. Recovering economic rent in all its manifestations by taxing its various bases actually can foster economic performance and yield other benefits that make it the natural source of revenue for governments. Such a tax is essentially painless. ...

Although one can infer innumerable instances where economic rent inheres in land factors, the econometric data maintained by public agencies has not been compiled in a way that makes it easily identifiable. In fact the US Census of Housing ceased to keep records on the assessed value of land in 1987, reasoning that the quality was so poor that it was more misleading than it was helpful. The actual account of the "rental income of persons" in the US government National Income and Product Accounts is estimated at less than 2%,[10] yet this figure is widely acknowledged to be so unrealistic an estimate that it is ludicrous by itself. What studies have been performed to calculate economic rent suggest that the amount for real property alone is in the neighborhood of 30 percent of a nation's GDP.[11] This realm of research begs for attention, but it will not likely be more than approximate as long as government statistics are so lacking and unreliable. ... read the whole article

One of assessors' greatest problems today is the strong pressures from owners who want to allocate as much value as possible to buildings that they may depreciate for federal income tax purposes. Here is where we must study how the parts form the big picture. Here is where federal and local tax policies intersect. Some Georgists have neglected or misunderstood the income-tax treatment of land income. Let us see how this works.

Congress and the IRS let one depreciate buildings, but not land, for income tax. This important distinction harks back to when the income tax was new, and Georgist Congressmen like Warren Worth Bailey, from Johnstown, PA and Henry George Jr., from Brooklyn were instrumental in shaping it.

When a building is new, the depreciable value is limited to the cost of construction. The non-depreciable land is the bare land value before construction. So far, so good. Over time, however, building owners have converted this into a tax shelter scheme. Owner A, the builder, writes off the building in a few years, much less than its economic life, and sells it to B. "A" pays a tax on the excess of sales price over "basis." The basis is reduced by all depreciation taken, so any excess depreciation is "recaptured" upon sale. It is defined by Congress as a "capital gain," and given the corresponding package of tax preferences:

• deferral of tax,
• lower rate,
• step-up of basis at time of death,
• tax-free exchanges, etc.

Thus far, any tax preference goes to A, the builder, and may be seen as a wellconsidered building incentive. Watch, however, what happens next. "A" sells to B and B depreciates the building all over again, from his purchase price. To do so, B must allocate the new "basis" - i.e., his purchase price - between depreciable building and non-depreciable land.

How shall B allocate the new basis? Enter the local tax assessor. Here is where local assessment intersects with Federal income tax policy. The IRS does not try to assess land and buildings. Instead, IRS instructions tell taxpayers they may use locally assessed values to allocate basis between depreciable buildings and non-depreciable land. The IRS accepts this allocation as conclusive. As a result, local owners of income property press their assessors to allocate as much value as possible to buildings, and as little as possible to land. This does not affect their local taxes, but lowers their federal taxes. It lets them depreciate land.

Local revenues are not immediately affected. Local assessors have little reason not to accommodate their constituents, local landowners, to help them depreciate land for federal and state income tax purposes. They have little reason to use the correct "building-residual'' method of allocating value, and a compelling reason to use the wrong method that understates land value. Thus they convert non-depreciable land value into depreciable building value. It is the modern version of "competitive underassessment." In the process, they also convert the local property tax from a land tax into a building tax.

After a while B sells to C, who in turn sells to D, so each building is depreciated many times. So is a large part of the land under it, tame after time, although it should not be depreciated at all. This is carried so far that real estate pays no federal or state income taxes at all.

The solution to this lies with the U.S. Congress. The need is to limit depreciation to one cycle only. It is a most urgent problem for both federal and local treasuries. We all have Congressmen. Write to them and raise their consciousness. They are brokers who respond to public opinion. It is we who are derelict.   ... Read the whole article

• We build more jails (no matter what the levels of crime)
• More people are hurt or killed in car accidents (which results in a sort of economic activity)
• A priceless forest is clear-felled thus "creating jobs"

• Consumer credit charges
• Mortgage interest charges
• The cost of the land component of new home purchases

Second, some goes as a return to capital, over replacement. This is pure income. Income to capital is not a taxable surplus, but a functional incentive: it moves people to form and supply capital. This entails securing new capital (by saving, and borrowing) and conserving old capital (avoiding dissaving, and avoiding export of capital).

Capital income serves another useful function: it steers capital into the most productive uses. Steering capital to its best uses has the same useful function as securing new capital, and conserving old. Using capital effectively is as beneficial as securing more capital, and ever so much cheaper. The Great Transition in Russia now is learning to allow income on capital, to secure these benefits. The trick is to do it without allowing more than is needed.

The rest of the excess over wages is captured in the rent of land. It is a true taxable surplus. The amount is already huge, and will become huger yet when existing taxes are abated.

The size of rent is not reported in capitalist nations, except to trivialize it. Their national accountants, dominated by landowners, neglect or conceal it artfully, to protect it from being taxed. Local governments do, however, measure and tax property by value. More than half the value of property is land. In Vancouver, B.C., 73% of the value of all property assessed for taxation is land, even though much land there is exempt from tax, and not assessed at all. In California's major cities it would be just as high if only we assessed land here as accurately as they do there.  ... read the whole article

YOU MAY THINK the largest category of assets in this countrly is industrial plant and machinery. In fact the US Federal Reserve Board's annual balance sheet shows real estate to be the economy's largest asset, two-thirds of America's wealth and more than 60 percent of that in land, depending on the assessment method.

This price appreciation is actually a "land gain," that is, it's not from providing start-up capital for new enterprises, but from sitting on a rising asset already in place, the land. Its value rises because neighbourhoods are upgraded, mortgage money is ample, and rezoning is favorable from farmland on the outskirts of cities to gentrification of the core to create high-income residential developments. The potential capital gain can be huge. That's why developers are willing to pay their mortgage lenders so much of their rent income, often all of it.

Of course, investing most surplus income and wealth in land has been going on ever since antiquity, and also pledging one's land for debt ("mortgaging the homestead") that often led to its forfeiture to creditors or to forced sale under distress conditions. Today borrowing against land is a path to getting rich -- before the land bubble bursts. As economies have grown richer, most of their surplus is still being spent acquiring real property, both for prestige and because its flow of rental income grows as society's prosperity grows. That's why lenders find real estate to be the collateral of choice.

Most new entries into the Forbes or Fortune lists of the richest men consist of real estate billionaires, or individuals coming from the fuels and minerals industries or natural monopolies. Those who have not inherited family fortunes have gained their wealth by borrowing money to buy assets that have soared in value. Land may not be a factor of production, but it enables its owners to assert claims of ownership and obligation, i.e., rentier income in the forms of rent and interest.

Over the past 40 years I have specialised in the study of the factors that raise or lower the nation's overall real estate prices -- rising income and savings levels, shifting interest rates and the financial sector's supply of mortgage credit, as well as changes in the tax laws and related market-shaping rules. This work for Wall Street banks and institutional investors was burdened by the absence of reliable data on the value of land and buildings. The official nationwide real estate statistics do suggest that a politically motivated asymmetry is at work in the economy, benefiting real estate, which I shall now attempt to identify.

BAUDELAIRE OBSERVED that the devil wins at the point where he convinces humanity that he does not exist. The Financial, Insurance and Real Estate (FIRE) sectors seem to have adopted a kindred philosophy that what is not quantified and reported will be invisible to the tax collector, leaving more to be pledged for mortgage credit and paid out as interest. It appears to have worked. To academic theorists as well, breathlessly focused on their own particular hypothetical world, the magnitude of land rent and land-price gains has become invisible. But not to investors. They are out to pick a property whose location value increases faster rate than the interest charges, and they want to stay away from earnings on man-made capital -- like improvements. That's earned income, not the "free lunch" they get from land value increases.

Chicago School economists insist that no free lunch exists. But when one begins to look beneath the surface of national income statistics and the national balance sheet of assets and liabilities, one can see that modern economies are all about obtaining a free lunch. However, to make this free ride go all the faster, it helps if the rest of the world does not see that anyone is getting the proverbial something for nothing - what classical economists called unearned income, most characteristically in the form of land rent. You start by using a method of appraising that undervalues the real income producer, land. Here's how it's done.

PROPERTY IS APPRAISED in two ways. Both start by estimating its market value.

• The land-residual approach subtracts the value of buildings from this overall value, designating the remainder as the value of land. Building values may be estimated in terms of their replacement cost (which usually produces a very high estimate, leaving little land value) or their depreciated value (which gives an unrealistically low building estimate, inasmuch as maintenance and repairs save most buildings from deteriorating through wear and tear). Using the depreciated value method leaves a higher residual land value. The Federal Reserve Board recently has experimented with a hybrid intermediate method that values buildings on the basis of their "historical costs".
• The building-residual approach starts by valuing the land, and treats the difference as representing the building's value. The first step in this approach is to construct a land-value map for the district or city. This displays fairly smooth contours for land values. Overlays would show zoning variations. Most of the variations in property prices around this normalized map will be for structures, along with a sizable component of "errors and omissions." This approach rarely is used, and most assessed land values vary drastically from one parcel to the next. The problem is especially apparent in the case of parking lots or one-story "taxpayers," that is, inexpensive buildings in neighbourhoods that are heavily built up. Their purpose is simply to be rented out at enough to carry the property's tax bill, not to maximise the site's current economic value.

Note that the Fed's land-residual appraisal methods do not acknowledge the possibility that the land itself may be rising in price. Site values appear as the passive derivative, not as the driving force. Yet low-rise or vacant land sites tend to appreciate as much as (or in many cases, even more than) the improved properties around them. Hence this price appreciation cannot be attributed to rising construction costs. If every property in the country were built last year, the problem would be simple enough. The land acquisition prices and construction costs would be recorded, adding up to the property's value. But many structures were erected as long ago as the 19th century. How do we decide how much their value has changed in comparison to the property's overall value?

The Federal Reserve multiplies the building's original cost by the rise in the construction price index since its completion. The implication is that when a property is sold at a higher price (which usually happens), it is because the building itself has risen in value, not the land site. However, if the property must be sold at a lower price, falling land prices are blamed.

If it is agreed that any explanation of land/building relations should be symmetrical through boom and bust periods alike, then the same appraisal methodology should be able to explain the decline of property values as well as their rise. The methodology should be as uniform and homogeneous as possible. By that, I mean that similar land should be valued at a homogeneous price, and buildings of equivalent worth should be valued accordingly.

If these two criteria are accepted, then I believe that economists would treat buildings as the residual, not the land. Yet just the opposite usually is done.

Increases in property values were explained as construction cost increases, original cost times the annual rise in the Commerce Department's construction price index, typically 3 percent. Its tendency to rise steadily appears to explain the rise in property values by wage inflation and rising costs of materials. On this logic real estate prices seem merely to keep up with inflation. There is no hint of unearned gains or a free lunch. ...

SUMMARY

For hundreds of years property's value has been calculated by discounting its flow of rental income at the going rate of interest. The lower the interest rate, the higher the price a given rental stream will justify -- or as property owners express it, the more years' rent a property will bring. What is so striking about land values today is that they are rising for reasons independent of their earnings stream. The major new consideration is their prospect for future "capital" (that is, land-price) gains. In sum, the ultimate aim of real estate investors no longer is so much to seek income -- most of which is pledged to their bankers as interest payments on the property they acquire -- as much as to seek property gains. Politically opportunites abound. Merely changing zoning in New York City in the 1980s to allow using commercial loft spaces for residential purposes had the effect of multiplying asset values five or tenfold.

Whether the gains come from selling the property or from borrowing more money against it, the essential phenomenon is the rapid growth in asset values and real estate's uniquely favored tax treatment. That's why investors choose real estate instead of bonds or stocks, and much of the strategy underlying corporate takeovers has followed the strategies they developed over the past half century.

Nationwide the capital-gains dimension needs to be incorporated into the rental revenue statistics to measure real estate's total returns. This sector's nearly complete success in escaping the tax collector has placed an enormous tax burden on everyone else. read the entire article

• Conventional use of fractional assessments in many states
• Lag of assessments behind the rise of land values, and behind the fall of building values with depreciation and obsolescence. Increasingly, this extra-legal process has been institutionalized, as in Prop. 13, California
• Use of capitalized income method for assessing business properties (other than apartments). The bias is against intensive uses in zones of transition (ecotones), at every margin between lower and higher uses.
• Conventional preference given to acreage, regardless of location, regardless of industrial use. (Allis-Chalmers example in center of West Allis, Wisconsin. Omission of acreage from otherwise good studies by the U.S. Census of Governments under Allen Manvel.)
• Classification of land for taxation, with preferential low assessment for lower uses (rarely are assessments above the market for any use, except apartments and rentals for the poor). In California, some favored use-classes are farming, timber, and golf. Alabama has another set of low-tax classes, favoring land in forests and hunting grounds, catering to the Heston vote in league with absentee corporate owners (and, for no visible theological reason, organized fundamentalists). Lands in classified uses are assessed by capitalizing their visible money income from the official use only, thus exempting from the tax base all values from rustic manorial, recreational, and blood-sport uses, and all speculative values based on higher future uses. In vast rural and sylvan areas these other influences are the main source of market value.
• Assessments capped by zoning, even when the market does not believe the zoning will endure, or be enforced
• Regressive assessments, swayed by case law which reflects differential ability to finance lawsuits and appeals.
• Discounts for large lots or other holdings that should be subdivided
• Failure to publicize assessed values. In some states the values are not even open to public inspection - Lee Reynis, Director of the Bureau of Business & Economic Research, University of New Mexico, has told this audience of secrecy enforced by law in New Mexico
• Reluctance to recognize premium for plottage potential
• Exempt lands, owners, and land uses. Churches, often targeted by critics, are minor offenders. Cemeteries are major: they also include commercial ventures holding vast lands for future sale. Commercial or not, they consume more than their share of water, often at preferential rates. In industrial dependent Milwaukee, cemeteries preempt more space than all industry, which helps account for the city's 20% population decline since 1960. Public lands held by schools and the military tie up much of San Diego. New York City and Washington, D.C., are notorious for their “free lists” of exempt lands. Once an agency acquires land it never again appears in the budget, so bureaucrats squander it.
• Homestead exemptions, in some states - widely abused.
• Preferential underassessment of lands with low turnover. Extreme underassessment of lands that do not sell:
• corporate holdings;
• proprietary golf clubs;
• dynastic holdings;
• inherited lands.
• Rail and utility adjunct landholdings, i.e. other than their ROW. (These are state-assessed, not on local tax rolls; are assessed as acreage, usually, which means underassessment; anyway, taxes are passed on to ratepayers in the rate-regulation process. Vast holdings by rails, e.g. 10% of Chicago; 5% of Milwaukee; vast SP holding south of Market Street in San Francisco, and statewide. Hydrocarbon holdings by regulated utilities.)
• Rights of way. Assessors ignore monopoly power inherent in ROW, assess ROW land on its value in the best alternative use
• Discounts to large owners who have policy of slow sales or leasing. (Such discounts are given to Oregon timber; to Appalachian coal; and many extractive resources. They are given to laggards in ecotones.)
• Conventional reluctance to base assessments on speculative values, even when condemnation awards are so based
• Failure to assess land first, using maps (with building value as the “residual”)

• First, it emphasizes the house, the building, de-emphasizing the land. That is wrong because the income proper imputable to the house, per se, is much less than its rent equivalent. The house requires constant expenses for upkeep, heating, maintenance and repairs, cleaning, painting, etc. etc. The house also depreciates, physically. Those expenses and the depreciation must be deducted from the rental equivalent to get the net income.

• Second, it is misleading by omitting vast lands beyond the “house” value, narrowly defined. We may presume that “house” includes the land under it, and a little yard or curtilage, but what about other lands held for the owners’ personal enjoyment? No agency collects data on such lands and their values, but common observation tells us they are vast and valuable, and dominate values in many “rural” counties.
           c. Use of “NIPA” accounts from the U.S. Department of Commerce
    The standard source of data on GNP and its components is the National Income and Product Account (NIPA), kept and published regularly by the U.S. Department of Commerce. When it comes to rent, however, NIPA depends on the IRS figures, which thus are passed along to all students of economics as the “official” accounting. We have just seen how far from reality these data are.
  
    NIPA is worse, in a way, because NIPA explicitly excludes “capital gains” from National Income.
  
    NIPA is better by virtue of its making a gesture at including the imputed value of owner-occupied housing. Whether they do it right is a question on my agenda.
  
          d. Use of Federal Reserve Board (FRB) estimates
    Another source of data is the FRB. Unfortunately it is ensnared in the same intellectual webs as the other agencies, so its nominal independence is wasted. Michael Hudson has dissected FRB methods, which resulted in reporting rents of income property far below reality. The reductio ad absurdum arrived when its clerks, evidently plodding “on automatic,” duly reported that the rents of all the income property in the U.S.A. are negative. Someone in authority finally noticed, was embarrassed, and discontinued the series.
  
          e. Relying on the National Bureau of Economic Research (NBER)
    Many economists treat numbers from the NBER as iconic. The press routinely cites their datings of U.S. recessions and recoveries as “official.” Many writers cite Raymond Goldsmith's estimates of United States land values, dating from 1955 and 1962, as “authoritative,” because they carry the NBER imprimatur. Yet they do not bear examination, even for their times. They were generated as incidents to other work in an offhand and indefensible way.
  
    It is not easy to retrace Goldsmith's steps; one must track interlocking footnotes from several sources. At the end of the trail, however, he simply takes residential land value as 15 percent of building value (which comes to 13 percent of land and building value). The basis of this allocation is the share of land in the cost of one to four family houses insured by the Federal Housing Authority, which was about 20 percent. He does not even explain why he cut this down to 13 percent. Goldsmith then applies this basis to nonresidential real estate as well. As for corporate held lands, he enters them at book value -- an attitude that opened the door to an epidemic of corporate raiding. Goldsmith also seems to omit vacant lots and unsubdivided land.
  
    These methods are not worthy of the faith with which several economists cite the results. FHA insured houses are not typical. They tend to be new and on cheap land. Those not new are not very old -- in 1967 the median age of insured existing homes was thirteen years. To apply such data to a typical American city, most of whose dwelling units in 1965 antedated 1920, was outlandish. It is more outlandish today in 2004.
  
    FHA clientele is lower middle class, which means the land share is low, land being both a consumer luxury and a rich man's hedge, the land share rising sharply with value. The high land share in Beverly Hills, Greenwich, Belvedere, Santa Fe Springs, Palm Beach, Kenilworth, and other enclaves of wealth is missing from FHA data.
  
    The FHA is most active at the expanding fringe of cities. A basic fact of urban land economics is that the land share rises toward the center. In Manhattan, for example, the share of assessed land value has always been higher than in the other boroughs.
  
    Applying a land fraction derived from residential data to commerce and industry is not believable. The land share is highest in retailing, the more so now that retailing entails vast parking areas. Filling stations and and drive-ins of all kinds entail vast aprons for small buildings with short lives. Some retailers store their inventories outdoors: auto dealerships, lumber yards, junk yards are examples. Many wholesalers and industries do the same: tank farms, railroad yards, utility easements, industrial reserves, dumps, drive ins, salt beds, terminals, heaps of coal and salt and sulfur, and so on and on. In downtown Milwaukee, half the assessed value is land. In Manhattan, it is instructive to consider the Empire State Building. If ever a structure overdeveloped a site, the world's tallest building on a fringe site should be it. Yet in two transactions since 1950 the site was valued at one third the total. One may infer what this implies of the whole island.
  
    Anyone active in real estate would have caught Goldsmith’s error. Yet it passed muster with the NBER, his publisher the Princeton University Press, and several learned academic reviewers. This is not a measure of their general incompetence, but of the extent to which academicians have walled themselves off from anything bearing on the realities of land values and rents. Goldsmith treated land carelessly, as a trivial side-issue, and his finding was ignored by everyone except those who needed to invoke an authority to trivialize land value.
  
    Several published case studies document the higher ratio of land value to building value in non-residential uses, and central cities. Here I will merely list them.
  That is, first the IRS converts rents into capital gains, and then NIPA banishes capital gains from GNP, National Income, and National Product. “Capital gains” is an artificial term, that includes all gains realized from the sale of what Congress defines at any time as “capital assets.” “Capital assets” include land and improvements, housing, common stock, growing timber, breeding herds (including race and show and riding horses), mineral and hydrocarbon reserves in the ground, and several other favorite holdings of the rich and well-connected. As we saw in “b”, most commercial rents show up as capital gains, so that NIPA does not report them at all. Then along come highly visible economists like Paul Samuelson, Robert Solow, Theodore Schultz, Edwin Mills, Jan Pen, and others to look up this datum, and declare that land rents are no more than 5% of national income, and cannot possibly support modern governments. This is unfortunate, and quite misleading.

• Wilks, H. Mark, 1964. Rating of Site Values: Report on a Pilot Survey at Whitstable, abr. ed. (London: Rating and Valuation Association), p.14
• Wendt, Paul, Dynamics of Central City Land Values, Research Report 18 (Berkeley, Calif.: Real Estate Research Program, University of California, 1961), pp.40, 42
• Cowan, Bronson, 1958. A Graphic Summary of Municipal Improvement and Finance, International Research Commission on Real Estate Taxation (New York: Harper and Bros., 1958), passim.
• Griffenhagen Kroeger, Inc., "The Effects of Tax Exemption for Improvements and/or Personality," mimeographed (San Francisco (?): Assembly Interim Subcommittee on Tax Exemption, California Legislature, November 1962), pp.25 40
• Schwartz, Eli, and James Wert, An Analysis of the Potential Effects of a Movement Toward a Land Based Property Tax (Albany, N.Y.: Economic Education League, 1958), pp.19, 23
• Gaffney, Mason, 1970. “Adequacy Of Land As A Tax Base.” Published in Daniel Holland (ed.), The Assessment of Land Value. Madison: University of Wisconsin Press, pp.157-212, esp. Table 9.3

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

How much revenue?

Total land values or land rents are not reported in national statistics. The U.S. national income accounts have a number only for the “rental income of persons,” which excludes rent obtained by corporations and the rental value of government land. This “rental income” is after all expenses, including property taxes, and so includes only a tiny fraction of the geo-rent.40

The national rent in the United Kingdom has been estimated at 22 percent of national income, which exceeds the amount raised in that country by the income tax.41 Steven Cord42 estimated the annual economic rent of land in the U.S. in 1986 at $680 billion, 20 percent of national income, while Mike Miles (1990) arrived at a similar figure using data from the Bureau of Economic Analysis.43 The totals include government lands but do not include the increase in geo-rent that would occur with the elimination of market-hampering taxes.

Making up about one-fifth of national income, land value taxation would provide about 60 percent of current U.S. federal, state, and local government revenue, which would be more than adequate for government spending if it did not include transfer payments. The taxable value of the land in the economy would increase over time for two reasons.

• First, a shift from taxing production to taxing land values would eliminate the lost output due to taxes — about $1 trillion per year.44 One-fifth of that would be rent, thus increasing rent by $300 billion.
• Secondly, the economy would grow faster, which also would increase rent over time.

Tideman et al. (2002, 17) “estimate that the net gain (measured in real dollars of 2000), from shifting as much taxation to land as could be financed by collecting 90% of the land rent, would be $1308 billion or 14% of NDP in 2002 and $4,799 billion or 26.6% of NDP in 2042.” Even if only a fraction of government revenue shifted from the types of taxes we know today to a geo-rent tax, the efficiency gains could be substantial. Some critics simply do not believe these results, without bothering to read them. I have not seen a rebuttal of Tideman’s calculation. ... read the whole document

see also:
The Land-Residual vs. Building-Residual Methods of Real Estate Valuation, http://www.michael-hudson.com/articles/realestate/0110LandBuildingResidual.html

The Methodology of Real Estate Appraisal: Land-Residual or Building-Residual, and their Social Implications http://www.michael-hudson.com/articles/realestate/0010NYURealEstate.html

How to lie with real estate statistics: The Illusion that Makes Land Values Look Negative; How Land-Value Gains are Mis-attributed to Capital http://www.michael-hudson.com/articles/realestate/01LieRealEstateStatistics.html

Where Did All the Land Go? - The Fed’s New Balance Sheet Calculations: A Critique of Land Value Statistics http://www.michael-hudson.com/articles/realestate/01FedsBalanceSheet.html

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

A Second Set of Books

Mental models begin with assumptions. Most economists today assume there are only two kinds of property, private (that is, corporate or individual) and state. There are no shared assets, no inter- or intragenerational obligations, and no nonhumans other than those we eat.

Yet as we’ve seen, many things are missing here. The most obvious omission is the great economy of nature within which the human enterprise operates. We’re borrowing prodigiously from that economy, but not recording the loans. Equally absent are future generations, from whom we’re borrowing just as wantonly and surreptitiously. In a proper bookkeeping system, every loan shows up on two balance sheets, the borrower’s and the lender’s. One entity’s liability is another entity’s asset. But this isn’t true in contemporary economics. When the human economy grows, assets on corporate and individual balance sheets go up, but nowhere is there a debit. In fact, there aren’t any accounts that could be debited. There’s only good growth on one side of the ledger, and on the other, a void in which illth and debt accumulate, uncounted and unnoticed.

In recent years, economists have added a few bits to this stripped-down model. For example, they now recognize public goods and ecosystem services as contributors of economic value. Public goods are services like national defense, education, and flood control, which benefit everyone but can’t easily be sold at a profit. Because markets don’t adequately supply them, governments step in and do so. Economists sometimes debate whether the value of these public goods exceeds the “burden” they impose on taxpayers, but they don’t see the expenditures as adding value to any account, or to any asset owned by anyone.

Similarly, many economists now recognize ecosystem services as valuable inputs to the economy. However, the ecosystems that produce these services have no owners or balance sheets. They’re just there, floating in space, with no connection to humans. What I’m suggesting is that economists treat them as if they were common property held in trust. This simple supposition would not only put ecosystems on the books, enabling us to track them better; it would also pave the way to real-world property rights that actually protect those ecosystems. ... read the whole chapter