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H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: 12. Effect of Remedy Upon Various Economic Classes (in the unabridged P&P: Part IX: Effects of the Remedy — Chapter 3. Of the effect upon individuals and classes)
Even if universal history did not teach the lesson, it is in the United States already becoming very evident that political equality can continue to exist only upon a basis of social equality; that where the disparity in the distribution of wealth increases, political democracy only makes easier the concentration of power, and must inevitably lead to tyranny and anarchy. And it is already evident that there is nothing in political democracy, nothing in popular education, nothing in any of our American institutions, to prevent the most enormous disparity in the distribution of wealth. Nowhere in the world are such great fortunes growing up as in the United States. Considering that the average income of the working masses of our people is only a few hundred dollars a year, a fortune of a million dollars is a monstrous thing – a more monstrous and dangerous thing under a democratic government than anywhere else. Yet fortunes of ten and twelve million dollars are with us ceasing to be noticeable. We already have citizens whose wealth can be estimated only in hundreds of millions, and before the end of the century, if present tendencies continue, we are likely to have fortunes estimated in thousands of millions – such monstrous fortunes as the world has never seen since the growth of similar fortunes ate out the heart of Rome. And the necessary correlative of the growth of such fortunes is the impoverishment and loss of independence on the part of the masses. These great aggregations of wealth are like great trees, which strike deep roots and spread wide branches, and which, by sucking up the moisture from the soil and intercepting the sunshine, stunt and kill the vegetation around them. When a capital of a million dollars comes into competition with capitals of thousands of dollars, the smaller capitalists must be driven out of the business or destroyed. With great capital nothing can compete save great capital. Hence, every aggregation of wealth increases the tendency to the aggregation of wealth, and decreases the possibility of the employee ever becoming more than an employee, compelling him to compete with his fellows as to who will work cheapest for the great capitalist – a competition that can have but one result, that of forcing wages to the minimum at which the supply of labor can be kept up. Where we are is not so important as in what direction we are going, and in the United States all tendencies are clearly in this direction. A while ago, and any journeyman shoemaker could set up in business for himself with the savings of a few months. But now the operative shoemaker could not in a lifetime save enough from his wages to go into business for himself. And, now that great capital has entered agriculture, it must be with the same results. The large farmer, who can buy the latest machinery at the lowest cash prices and use it to the best advantage, who can run a straight furrow for miles, who can make special rates with railroad companies, take advantage of the market, and sell in large lots for the least commission, must drive out the small farmer of the early American type just as the shoe factory has driven out the journeyman shoemaker. And this is going on today. ... read the whole article
Henry George: Thou Shalt Not Steal (1887 speech)
The relation of employer and employed is a relation of convenience. It is not one imposed by the natural order. People are brought into the world with the power to employ themselves, and they can employ themselves wherever the natural opportunities for employment are not shut up from them.
People do not have a natural right to demand employment of another, but they have a natural right, an inalienable right, a right given by their Creator, to demand opportunity to employ themselves. And whenever that right is acknowledged, whenever the people who want to go to work can find natural opportunities to work upon, then there will be as much competition among employers who are anxious to get people to work for them, as there will be among people who are anxious to get work.
Wages will rise in every vocation to the true rate of wages — the full, honest earnings of labor. That done, with this ever increasing social fund to draw upon, poverty will be abolished, and in a little while will come to be looked upon — as we are now beginning to look upon slavery — as the relic of a darker and more ignorant age. ... read the whole article
Henry George: The Wages of Labor
It is often assumed that the labor question is a question between wage-workers and their employers; but working for an employer is not the primary or exclusive occupation of labor. Primarily men work for themselves without the intervention of an employer. And the primary source of wages is in the earnings of labor, the man who works for himself and consumes his own products receiving his wages in the fruits of his labor.
Are not fishermen, boatmen, cab-drivers, peddlers, working farmers – in short, all the many workers who get their wages directly by the sale of their services or products without the medium of an employer – as much laborers as those who work for the specific wages of an employer?
In considering remedies these workers are seldom thought of. Yet in reality the laborers who work for themselves should be first considered, since what men will be willing to accept from employers depends manifestly on what they can get by working for themselves.
It is assumed that all employers are rich men, who might raise wages much higher were they not so grasping. But is it not the fact that the great majority of employers are as much pressed by competition as their workmen – many of them constantly on the verge of failure? Such employers could not raise the wages they pay, however they might wish to, unless all others were compelled to do so.
It is assumed that there are in the natural order two classes, the rich and the poor, and that laborers naturally belong to the poor. It is true that there are differences in capacity, in diligence, in health and in strength, that may produce differences in fortune. These, however, are not the differences that divide men into rich and poor. The natural differences in powers and aptitudes are certainly not greater than are natural differences in stature. But while it is only by selecting giants and dwarfs that we can find men twice as tall as others, yet in the difference between rich and poor that exists today we find some men richer than others by the thousand-fold and the million-fold! ... 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)
It makes landownership more available to small business, and new businesses, by lowering the market price of land. It substitutes a deferred annual charge for a high price up front. This has the same effect as extending credit to all market agents on identical terms, thus offsetting the otherwise overpowering bias of credit rationing and discrimination in lending. Large surpluses of land are released to the market as the tax cost of withholding land forces it to be sold. Read the whole article
Walter Rybeck: The Uncertain Future of the Metropolis
The single element that makes me apprehensive about the future of our cities is our land system. Tentacles of our misguided land policies are choking almost every vital aspect of metropolitan life. This is doubly worrisome, because the full dimensions of the land problem have barely surfaced in the public consciousness. To put it in the vernacular, most of us don't know what's eating us.Jeff Smith and Kris Nelson: Giving Life to the Property Tax Shift (PTS)
We have scarcely begun to identify the causes of today's city land problems. This is not to denigrate the legions of good folk -- officials and citizens alike -- who are trying desperately to cope with the daily disasters. But without a better notion of what is producing these disasters, we are unlikely to stem the flood.
A major problem, certainly, is our distorted land system that operates around the clock and around the calendar, and under the full sanction of the law. It rips off the poor, saps small business, and deprives municipalities of their rightful revenue.
The people as a whole create land values, not only by their presence, but also through participation in government, as taxpayers. Schools, firehouses, streets, police, water lines -- the whole gamut of public works and services that enhance a neighborhood are converted into higher land values. The taxpayers of the entire country, through federal aid for our multi-billion-dollar Metrorail project, have been boosting Washington, D.C. land values mightily.
Not all land values are manmade. Inherent qualities also give land special advantages: fertile soils in farming districts, scenic views in residential areas, subsurface riches of coal, oil, and minerals. None of us, as landlords, tenants, or governments, can lay claim to having created these values. The people who have been drawing up an international law of the Seas have characterized these natural endowments as "the common heritage of mankind", where no people, individually or collectively, produce these land values, it is difficult to argue with the conclusion that they belong to all people equally.
If the institution of private property has a sound foundation, and I believe it does, then it rests on the principle that people have a right to reap what they sow, to retain for themselves what they themselves produce or earn. Land values, produced by all of society, and by nature, do not conform to this prescription. ...
Decade after decade, billions of dollars in urban land values are being siphoned off by a narrowing class that has no ethical or economic claim to them. To be outraged when a few ghetto dwellers, in an occasional frenzy of despair, engage in looting on a relatively miniscule scale, but to remain indifferent to this massive, wholesale looting, is worse than hypocritical. It is to ignore a catastrophic social maladjustment, more severe, I believe, than anything the U.S. has experienced since slavery. ...
But I sense that we are drifting rapidly towards a landlord-dominated society. ...
Before that happens, the opportunity awaits to see whether a reasonably free economy can still be made to work. Unless we tackle the land question, and the looting of America, that game may be forfeited.
The future of the metropolis is uncertain. The choice is ours. We can intervene in the way society is now headed, to preserve the American dream. Or, we can continue along the present path and await the American nightmare. Read the whole article
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. ...Mason Gaffney: Oil and Gas Leasing: a Study in Pseudo-Socialism
Might the PTS fall heavily on low-income land holders and elderly homeowners? The land-rich, money-poor old widow could suffer if society were to levy sites. Eventho' the vast majority of poor people would come out ahead, there probably will be the rare exception. To deal with "the widow on a valuable lot", the new policy could include deferments.
Just as some poor could pay more, some rich could pay less, such as the owners of a skyscraper that'd be the highest (literally) and best use of a site. While a PTS could be a tax break for a few, the intent of the shift is not so much to whittle away fortunes as it is to promote prosperity, equity, and sustainability. Were society to attain such goals, letting some fortunes escape unscathed is a small price to pay. Also, putting a site to best use, while profitable, also benefits the community by providing convenient employment, bringing money into the local economy, and by precluding less efficient development, such as sprawl.
Since the shift is progressive, then the rich are footing the bill for everyone else. To answer this charge that one group will pay more (those who can afford it), proponents could note that the amount one pays is scaled according to the value of what one takes -- a parcel of nature. The payment is for exclusive use to our common heritage. Those who exclude the rest from the best must expect to pay the most.
An obvious loser is a resource extractor such as an Oregon timber harvester (Weyerhauser is the biggest landowner in the state). All the rent that society now allows them to retain, they'd lose. Perhaps there is a silver lining to corporate mergers and diversification and interlocking stock holding; the huge corporations holding resources would have other profitable lines to turn to.
An obvious winner, balancing the losses of the extractor, are the service-providing companies located off the beaten path, like a neighborhood cafe. After centuries of just getting by, smaller enterprises would gain by competing on a level playing field. What they'd gain (that is, retain) is the fruit of their labor. Conversely, what big business would lose is the commonwealth generated by all. ...
Two other groups who have yet to fly the PTS banner but who stand to gain substantially are small businesses and service businesses (often the same). For a small business (this writer used to work in his father's), taxes are a double levy -- the tax owed and the fee for the accountant. Big companies have an easier time absorbing the costs of recording, verifying, and paying taxes. The simplification of taxation inherent in the PTS could appeal to small business people.
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
All that may sound familiar to students of 19th Century American history, and the privatization of the vast Federal domain. It is a long story of conflict between cash sales and more democratic means of placing lands. Those with cash and bank connections naturally favored cash sales. President Jefferson saw the merit in credit sales, so from 1801-20, sales were on credit. The system was badly administered, but so were all other systems of land disposal tried in that era. Collections became a problem, yet landownership was democratized. It enabled Andrew Jackson to proclaim on Thanksgiving Day, 1835, "We thank Thee for the absence of unemployment which in the King-ridden countries of the world is causing widespread suffering among the toiling masses and has led to riots ... (and that) there will be none to freeze, starve, or be beset by the fear of want this winter or the winters yet to come."
Following the period of credit sales, the return to cash sales re-introduced front-money bias. Small owners still had ways of fighting back at the state and local levels. States and counties and their subdivisions relied mainly on the property tax. They used this with good effect, often quite deliberately, to induce absentee speculators to release large holdings for sale and settlement. The impact of land taxes is analogous to that of credit sales. The specter of future taxes is capitalized into lower current land prices. They in turn let one buy cheaper up front, in return for a higher level of deferred payments. The net effect is like extending permanent credit on equal terms to all potential buyers, something private credit markets never do or could be expected to do.
Thus, the property tax, especially on land, is twice effective as an instrument of Distributive Socialism.
Thus it achieves something akin to the "worker control" that is an ideal avowed by many modern Socialists, melding egalitarian distribution with egalitarian management and control. To be sure, it does so in a small-business framework, an ideal that is traditionally Populist, not Marxist. However, in this new post-Communist age, when Socialists are seeking new ways to express their yearnings for the good society, they might want to reconsider the value of this approach to worker control. Perhaps Marx, like other reformers of his generation, was oversold on the economies and inevitable triumph of large scale capital and organization, and the substitution of capital for labor. Perhaps small is beautiful, after all.
Today's industry is faced less with the property tax than the income tax. Most state property taxes are applied only at low levels to mineral-bearing lands. Worse, the most active leasing today is on the OCS, outside the tax reach of any state or county, and so exempt from property taxation. ... Read the whole article
Mason Gaffney: Property Tax: Biases and Reforms
The invisible, pervasive change is due to Proposition 13, which makes it possible to hold land at negligible tax cost. In 1945 land was taxed at 3 percent every year, building a fire under holdouts to turn their land to use. Today that same tax cost is well below 1 percent. Using Gwartney's Rule of Thumb (see below under #2, A, "Reassessing Land Frequently") it is about 1/8 of 1 percent: a rate of 1 percent applied to 1/8 of the true value.
Landowners are only taxed now if they use their land to hire people and produce something useful. Then they are confronted by the drag of our high business and employment and sales taxes, necessitated by the fall of property taxes. A handful of oligopolistic landowners control most of the market; small businesses are squeezed out. This helps us segue from being at the cutting edge of industrial progress to a third-world economy - from the NH model to the AL model - with little relief in sight.
What was different then? We had high property tax rates, but they were more focused on land than now, less on new buildings. Another obvious difference was the lower burdens of sales tax, business tax, and income tax. California was more hospitable to Georgist thinking than perhaps any other state, shown by its long run of Georgist political action in the prior thirty years. Most people today are totally ignnorant of this subject. It has been deleted from our history books. Here is a brief review. ... ... Read the whole article
Michael Hudson: The Lies of the Land: How and why land gets undervalued
Turning land-value gains into capital gains
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH
* Its cost to citizens
* Its cost to the economy
Tax favouritism for real estate
was defended in Congress on the
ground that it was in the public interest to provide a special
inducement to the real estate industry to build more homes and office
buildings. But as Adam Smith observed, every industry represents
itself as serving the public interest. Can one really say that
investors borrowing 70 percent of private-sector loans to ride the
wave of asset-price inflation are more in the national economic
interest than favoring direct investors to build new plant and
businesses that employ labor rather than pricing homes, office
buildings and industrial sites further and further out of reach of
those who must earn their income by increasing society's productive
powers?... read the
Michael Hudson and Kris Feder: Real Estate and the Capital Gains Debate
WHAT IS MISSING FROM THE CAPITAL GAINS DEBATE?
Capital gains taxation has been a divisive issue in Congress at least since the debates surrounding the Tax Reform Act of 1986, which, aiming to eliminate tax loopholes and shelters and preferences, repealed preferentially low tax rates for long-term gains.1 To bring effective capital gains tax rates back down again was President Bush’s “top priority in tax policy.“2 In 1989, Senate Democrats blocked a determined drive to reduce effective tax rates on the part of Bush, Republican Senators Packwood, Dole and others, and a few Democratic allies.3 The administration argued that the tax cuts would stimulate economic growth and induce asset sales, thereby actually increasing federal tax revenues; Congressional Democrats countered that the plan benefited mainly the wealthy, and that tax revenues would in fact decline.4 The Joint Committee on Taxation projected that budget shortfalls beginning in 1991 would sum to about $24 billion by 1994 -- and that most of the direct benefits would go to individuals with over $200,000 in taxable income. House Speaker Thomas S. Foley said that a third of the savings would be enjoyed by those with gross incomes over one million dollars. ...
The most frequently heard arguments for reducing capital gains taxes are:
(1) to reduce the “lock-in” effect, by which high tax rates at realization deter asset sales;14
(2) to relieve a disproportionate burden on homeowners;
(3) to compensate for the erosion of capital gains by inflation, as an alternative to indexing;15
(4) to end alleged double taxation of both capital stocks and income flows;
(5) to spur productive enterprise and investment; and
(6) to generate more tax revenue from the consequent growth in asset sales and productivity.
14 Some argue that eliminating step-up of basis at death would do more to reduce lock-in than a rate cut. See Joint Committee on Taxation (1990), p. 2 1; Gaffney (1991).
15 For an analysis of the case for inflation indexing, see Gaffney (1991).
This report calls attention to a neglected aspect of the capital gains issue -- one which bears importantly on the fifth- and sixth-named consequences.
Much of the capital gains debate today focuses on the stock market. Business recipients of capital gains are characterized as small innovative firms making initial public offerings (IPOs). In recent years such firms have been responsible for a disproportionate share of new hiring. It is hoped that corporations will be able to raise money to employ more labor and invest in more plant and equipment if buyers of their stocks can sell these securities with less of a tax bite. Stock market gains thus are held to stimulate new direct investment, employment, and output. ...
Reported capital gains in real estate were understated as a result of exclusions. On the other hand, much direct investment included the cost of land, commercial buildings, and plant and equipment. Taking this into account, we estimate that roughly 70 percent of the capital gains calculated by the IRS for 1985 probably represent real estate. Even this estimate may understate the role of land and real estate. In 1985, anticipating the planned 1986 tax reform which would raise the capital gains tax rate from 20 to 28 percent, many investors sold their securities that had registered the largest advances. Some 40 percent of the capital gains reaped by selling these stocks probably represented real estate gains. A major spur to the LBO movement driving up the stock market was an awareness that real estate gains were not being reflected in book values and share prices;36 as land prices leapt upward-funded in part by looser regulatory restrictions on S&L lending against land -- raiders bought publicly traded companies and sold off their assets, including real estate, to pay off their junk-bond backers. In effect, not only were rental income and profits being converted into a flow of interest payments; so also were capital gains. Read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper