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Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894) — Appendix: FAQ
The current trend toward returning functions to the states is a step in the right direction. But it encounters understandable objections that poor states cannot afford to do what they ought to do. Some form of revenue sharing is needed. But it is important to have the right definition of which states are rich and which are poor. The level of well-being in a state is determined in part by the wisdom of its public policies. States should not be penalized for adopting productive policies. Revenue sharing should equalize per capita levels of natural opportunities (mineral revenues, fishing rights, pre-development land rents, etc.) Replacing the personal and corporate income taxes with either a flat income tax or a national sales or value added tax would greatly reduce the excess burden of federal taxes. (Excess burden is roughly proportional to the square of the typical marginal tax rate.) But almost all the gains go to the rich. Perhaps the flat tax could be combined with a guaranteed income.
Even better than a flat tax or a national sales tax, in my view, would be a return to the revenue system that was apparently envisioned by the drafters of the Constitution in 1787. I mean a rule that the federal revenue requirement would be allocated to the states in proportion to their populations. The use of population as the allocation device seems anachronistic in this era of concern for impoverished regions. But the allocation could be corrected by an expenditure that equalized per capita access to natural opportunities.
I see three important virtues in allocating the revenue obligation to the states.
With only fifty states and each state aware of exactly how much each spending proposal will cost its treasury, I believe that it would be much harder to secure approval for inefficient or special-interest spending. ... Read the whole articleNic Tideman: Revenue Sharing under Land Value Taxation
The proposition that the rental value of land should be collected by governments and used for public purposes has a powerful moral rationale: Since no one made the land, no one can properly claim to own it. There is a simple efficiency rationale as well: Social collection of the rental value of land does not interfere with incentives to be productive. If governments do not collect the rental value of land, then they will levy taxes that discourage productive activity.
When "government" is not a monolith but a collection of entities with responsibilities in different geographic and functional areas, these rationales for land value taxation leave unanswered the question of how the rental value of land should be allocated among governments. That question is addressed in this paper.
Nic Tideman: A Bill of Economic Rights and Obligations
Our nation was founded on the idea that we are all created equal, that we are endowed by our Creator with certain inalienable rights, and that among these are life, liberty, and the pursuit of happiness.
In living, expressing our liberty, and pursuing happiness we sometimes conflict with one another, so we need a shared understanding of the extent of the sphere of equal rights given to every person, and beyond that sphere our obligation to respect the rights of others. This Bill is concerned with the economic aspects of these rights and obligations. ...
Article 4: Congress may
levies on states to collect from states a portion of the benefits
they receive from national defense, national systems of
infrastructure, research of national significance, or any private
activity that has widespread public benefits. State legislatures may
place corresponding levies on their subdivisions. ...
Mason Gaffney -- Canada's System of Revenue Sharing
It seems to me therefore that we need to face up to the question that is known in my trade as Fiscal Federalism, that is, how is money going to be distributed by the federal government out of its so-called surplus, either to people or the States, or localities? ...
The reason it's so hard to sell growth policies at the local level today in the United States is very much due to the fact that the United States federal government taxes people and it gives subventions to landlords. So the landlords can get the subventions without having the people. So who needs people? That's it in a nutshell. We need to reverse that, I think, if we're going to be able to make Georgism work at the local level. ...
At any rate, let's begin by looking at the similarities between the federal systems in the United States and Canada. In both countries we find something called 'vertical balancing' which means that the senior governments send money to the junior governments. We find also something called 'horizontal balancing' which means that the payments are made more to the poorer governments, those that are poorer on a per capita basis, than to richer ones. ...
... Cannan's Law. ... But the general idea is, you may think you have tenure control of land but if the municipal government can tax that land and use that money to finance public welfare services, public education and other things that are open to all comers, then you will end up with an uneconomical distribution of population. ...
At the same time, in both countries you find something I will call Hammer's Law. This is not a carpenter's tool but again the name of a man, an economist in Missouri, who observed in 1935 that if you compared population to land values in the different counties of his State (in the very poor counties of the Ozarks the land was hard scrabble land of very little value, with the very rich lands in the northwestern part of the State, which resembles Iowa) you found that the population density was much greater on the very poor land of the Ozarks than it was on the very rich land of the northwest. ...
Now another similarity to the two countries us that the subventions that do go from the federal government to the provinces in Canada (and you find a similar thing in the United States) do not come from the richer provinces. They come instead from the general fund, the general taxpayer. There is in other words more vertical balancing than there is horizontal balancing (horizontal balancing you remember means equalization among the different jurisdictions). It's a little like what somebody said about foreign aid. 'Foreign aid is a device by which poor people in rich countries are taxed to subsidize rich people in poor countries.'
We'll see that equalisation in most countries works something like that; that is, in addition to this inter-provincial equalisation, there's a tax shift involved where local sources of taxation like the property tax are being displaced by the federal income tax. I suppose Ferdinand Marcos would be a splendid example of the kind of person I was talking about in the poor country and in West Virginia you have all these coal companies whose owners live in Palm Beach, whose shareholders live in Palm Beach and such places, who benefit from an inter-state equalisation that benefits West Virginia. Well these are similarities. ...
The federal aid in Canada goes to provinces, whereas in the United States it goes to specific cities, The U.S. Congressman likes to have his fingerprint, as they say, on every dollar that goes from Washington. ... So in the States the idea has been: Tax the States according to their population and then give the money back according to political power. In the United States Senate it means that the smallest State has just as much clout as the biggest State or would have if their senators weren't so merchantable. (I mean, in California when we need something we just look to Nevada or one of those places for a Senator who is having difficulty raising funds for his next election. But that's another story.) ...
But the most delightful distinction about Canadians is the strong and explicit recognition among almost everyone, even if he's an economist, who discusses this subject, that different resource endowments are the basis of inter-provincial differences. Equalisation in Canadian politics means sharing the economic rent. Everybody talks that way. Canadian economists even when they come to the States talk that way. Just as though rent were a permissible word in polite discourse. It's very refreshing. However there's a very selective attitude towards rent -- towards what rents are shareable, I should say.
But now how about the rents that are generated
by the valuable lands of Montreal, or Toronto, or some of those other big
and powerful cities in the east? They are not fair game. As a
matter of fact, if you pore through the fine print of the equalization
law, which I did on the airplane, you find the most interesting exception
to what's included in the formula. I'll explain the formula to you in a
moment if you are still awake. ...
Now let's look at the sharing formula. The sharing formula in Canada is essentially based on population and potential tax base. And it can be made to look very complicated but I think I've boiled it down to its essence. You take a province's percentage of the population of Canada, and then you take the percentage of the tax base that it has, subtract that and that gives you another percentage. And then you multiply that times the total tax revenue that's collected throughout Canada from that tax source, and then you pay them that amount out of the provincial treasury. ...
The conclusion of all this is that the Canadian system is really better in terms of its Georgist implications because the payments to the provinces, with all the faults that I've described, are essentially based on population. Population is in the formula. And if you compare this with the way things are done in the States, population plays a very minor role in the formula for equalisation payments in the United States.
Now, how should it be done? Well, there's a well known Georgist economist who figured this out a long time ago and wrote an article about it. His name is Colin Clark. ... He came up with a plan for collecting economic rent at the federal level, and he said what we really should do, and this I think is the ultimate equalisation payment, is we should classify local jurisdictions according to land value per capita, and those that have the least land value per capita, we'll leave all of that land value for them to use for local purposes. But then we will graduate the federal land tax according to the amount of land value per capita in the jurisdiction, and thus we will have a federal tax that automatically achieves inter-regional equity, without all this razzmatazz that I've been describing about inter-regional equalisation payments. Read the whole article
Mason Gaffney: Property Tax: Biases and Reforms
Priority #1. Safeguarding the property tax
Priority #2: Enforce Good Laws
Priority #3. De-Balkanize Tax Enclaves
Priority #4. What Tax to Fight First?
Priority #5: Make Landowners Pay Their Taxes
A. Rich and Poor
There are rich jurisdictions and poor. Professor Tideman's paper in this conference alludes to this matter in passing. Let us support his point with some numbers.
In California, you might think that farm counties like Tulare have a lot more taxable value per capita than cities, but au contraire. Tulare County reports assessed values per capita of $38,100; the whole State averages $60,000 per capita. Suburban Marin County weighs in with $95,400; urban Los Angeles County has $59,000; Orange County has $74,000.
You might also think that Tulare, being rural, has a lot higher fraction of land value in its mix, but again, not so. The Land Share of Real Estate Value (LSREV) in Tulare County is 28 percent, compared to a statewide mean of 40 percent, and 47 percent in Orange County. (This datum, and others of like kind, refute the conventional belief that farm counties are heavy on land in the mix. On this last point, I must respectfully take issue with my good old friend Gene Wunderlich, whose paper at this conference suggests that farm counties have higher land fractions. I wonder if he has perhaps conflated building values with pure land values? My data, from California State Board of Equalization, show lower land fractions in real estate in the purely rural counties of the San Joaquin Valley.) Grazing and mining counties like Inyo have high values of LSREV, but they are a small share of the farm economy. (lnyo County, lightly peopled but heavily cattled, has $136,000 per capita, with very few human capita (and its cattle are exempt from the California property tax). Major farm counties with intensive farms, like those of San Joaquin Valley, have low values of LSREV.
Within counties, disparities among cities and school districts are much greater. In Tulare County, one pathetic little povertyville, the City of Parlier, has just $10,000 of assessed value per capita. Here are some assessed values per capita from different California cities in the County of Los Angeles: Lynwood, $21,500; Beverly Hills, $294,000 (14 times Lynwood); City of Industry, $5,533,000 (257 times Lynwood).
This is why some critics call the property tax "regressive." It has given some plausibility to the otherwise bizarre claim that switching to a sales tax is less regressive than sticking with the property tax. Within each city a property tax is progressive, but when your data meld cities like poor little Parlier and Lynwood with Beverly Hills, you sometimes find poor people paying more of their income in property taxes than rich people, and getting less for it. Switching just the local property tax to land ex buildings will do little or nothing to correct such disparities, and therefore make little progress toward overall social justice, and the wide support that will evoke. There is, in fact, a natural cap on local property tax rates imposed by local particularism: the City Council of Beverly Hills will not raise taxes in Beverly Hills for the benefit of voters in Parlier.
To avoid such regressivity we must work out some formula for power equalization. The most straightforward formula is simply a statewide land tax. On this I must again applaud Dick Noyes in NH - not for what he says, but what he does. What he says is that the genius of NH is its local control of revenues; what he does is initiate bills for a statewide land tax.
There are many other tax enclaves and exemptions
by which much property stays off the tax rolls. I have a long list, with
about 35 items. Here I'll just focus on two: timber and oil. Read
the whole article
Mason Gaffney: Privatizing Land Without Giveaway (1990)
Functional Reasons for Taxing Land Rent
Ethical Reasons for Taxing Land Rent
Political Reasons for Taxing Land Rent
Functional Reasons for Taxing Land Rent
1. Taxing land allows us to avoid taxing functional activities like production, exchange, work, saving, and investment. Taxing productive activities has counterproductive effects, certified by expert economic testimony.
This reasoning also gives us a new, expanded insight into the adequacy of land as a tax base. Under Physiocratic doctrine, land rent and taxable surplus are nearly coterminous.
Ethical Reasons for Taxing Land Rent
Once land titles are privatized, unearned gains and losses begin accruing immediately in this dynamic, complex, stochastic world. Expectations change daily; unforeseen windfalls and wipeouts based on exogenous, uncontrollable forces soon take over from original expectations which formed the basis of initial bids and sales prices. Surprises are inherent in land markets because land is irreproduceable, permanent and stationary.
Professor Thomas N. Carver has divided all incomes into "Earnings, Findings and Stealings." Historically most if not all land rent has been secured by stealing, that is by force of conquest in the manner of Iraq taking Kuwait, Cromwell taking parts of Ireland, Spain taking the Philippines, Captain John Mason massacring the Pequods to take Connecticut, and so on. There is a lingering presumption of unsanctity about landed property.
On the other hand, if buyers in a truly free market paid government up front the full present value of land, one could regard future land rent as an honest "earning" on their early payment to the general fund. That view prevails among landowners and their economists, ex parte to be sure, but still arguable. Even from this perspective, however, there soon arise windfall rents which are "findings." Such findings are just as non-functional socially as stealings based on force, covin and fraud.
A major source of such "findings" is new infrastructure which brings benefits to specific lands, and may remove them from others. In the Soviet lands, shifting from one political-economic system to a radically different one will entail massive changes of infrastructure - for example, providing micro-infrastructure like road and utility extensions for the many small private farms expected to supplant the present few giant collectives. Giant landholding units, both farm and industrial, typically have provided internally for much infrastructure that must now be provided publicly, no doubt with new plans and layouts.
The capital to finance this infrastructure now lies sleeping in the lands to be served, whose rise in value will more than cover the costs, providing the projects are well planned and executed. To be just, however, the land gains must be tapped to pay the cost. If they are not tapped, the result will be the unethical process of someone else's paying to give the landowners a windfall.
Some lands are occupied by squatters. When these lands are privatized and tenured, removing the squatters poses hard ethical choices. Should they be given a prior claim to own the land they occupy? With a land tax that problem is de minimis: the state may give them titles but then require regular land tax payments to keep them. All buyers are more able to pay over time than up front. Many squatters could pay that way, too: the effect is the same as extending credit to these poor risks on the same terms as to the best. The inevitable non-payers can be evicted selectively, leaving most squatters undisturbed.
Political Reasons for Taxing Land Rent
To unify a nation it makes sense for a central government to tax the rent from richer regions, those with more rent per capita, and distribute it nationally as some form of social dividend. Distribution should be on a per capita basis, and/or some surrogate basis like average daily attendance at school, military service, or social security entitlement. Nothing else that is purely economic seems as well calculated to give every citizen a birthright and stake in the nation.
On balance this policy helps overcome ancient ethnic loyalties and particularism. One must concede it may be resented by local landowners in regions of high land value per capita, exemplified by the Province of Alberta, Canada. However, local distribution of superior local rents - in money or superior public services - is of no lasting advantage to the bulk of local people. The gain is quickly offset by competition from immigrants drawn by the higher social dividend. Such migration is also socially wasteful.
National distribution of rent, by contrast, has a great efficiency advantage along with its political advantage. Local distribution mislocates the population by overattracting immigrants to the favored local polities, much as footloose people are now drawn to Moscow. National labor resources are wasted when people work at jobs of low productivity in order to enjoy the supplement of superior local public services. The efficiency advantage of national distribution can be made a political advantage because it raises national output for the gain of all.
The alternative method of distribution, "regional equity," sets an implied goal of equalizing rents among regions or local polities, rather than among individual citizens. Regional equity says, in the extreme, that every cow county deserves its own Grand Central Station or JFK Airport to compensate for its inherent geographical handicaps. It is a proven, historically certified recipe for dissipating rent and impoverishing rich states and nations. It may also be used as a cloak for costly, irrational imperialism, a way of clinging to distant, submarginal marches whose maintenance and demands exceed all possible economic, military or political gains.
Distribution to local governments is also a formula for aborting their development as quasi-independent sources of power. Such quasi-independence within a nation is needed to balance central power and check despotism. Early U.S. federalism had some praiseworthy features (I do not refer to modern "revenue-sharing"). Sovereignty was shared between central and state governments ("territories," earlier). States then set up counties, generally on the principle of nulle terre sans seigneur, that is without leaving much land unorganized and hence untaxed. The states' power of taxation was delegated to counties and later to cities as they organized.
A key factor is that little aid (other than
military) was passed from central to local governments as such. Local units
had power to tax property, and they used it. They had little effective power
to tax anything else. In this way, decentralized political power grew, saving
the U.S. from the evils of overcentralization that beset, for example, its
neighbor to the south.... read the whole article
Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper