Significant strides toward a fairer tax system have been made in Scotland, where the establishment of a dedicated commission on land reform has cemented the policy direction of the leading Scottish National Party.
SNP, Scotland’s governing party, held its annual conference in March, and attendees were jubilant at the commitment made to some form of land taxation. An amended motion stated that as the government works through its land reform program it “must include exploring all fiscal options including ways of taxing the value of undeveloped land”.
Back in 2015, grassroots SNP members rejected the party’s proposed land reform policy, on the basis that it didn’t go far enough and was thought to be a watered-down version of the ideal policy. This was considered significant then because it is rare for a party’s membership to overturn a policy on its own and send its representatives back to the drawing board.
Writing for Bella Caledonia, Jen Stout explains that growing pressure for land reform in Scotland was bolstered by debate during the nation’s independence referendum in 2014.
“The stark inequalities that damage Scottish society so much were a frequent topic, and few statistics hit you so hard as ‘432:50’ – around 432 interests own half the private land in Scotland. That private land, incidentally, makes up 89 percent of our 19 million acres. Community ownership accounts for two percent. Just one man, the 10th Duke of Buccleuch, owns one percent of Scotland.”
Adding to the chorus of Land Value Tax advocates is the Scottish Green Party, one member of which has prepared a manifesto on implementing Land Value Tax. Andy Wightman writes that the only major barrier to achieving this is the establishment of a land register, which currently does not exist for Scotland.
“Land Value Taxation is no longer the preserve of advocates and lobby groups on the margins of public debate. It is now a mainstream part of contemporary debates over the future of public finances, local revenues and public infrastructure.”
“There are signs that the public is becoming weary of the house price escalator. For one thing, young people (and by that I mean almost anyone under the age of 30) are being impoverished through the high cost of accessing property. For another, the credit crunch has exposed the weakness of an asset-based debt model. Combined with pressure for just rewards, fairness and greater equality, the arguments for LVT suggest its time may at last have come.”
For all the progress being made in setting the priorities of major political parties, significant misunderstanding of the Land Value Tax policy remains. Public opinion regularly equates a land tax with explicit “community ownership”, which is a failure to grasp the concept of returning the value of public goods to communities.
Wightman writes that while some industries, like forestry and agriculture, and the owners of buildings on high-value land would be resistant to the new system, serious effort should be expended to educate low and middle-income families and the business, retail and industrial sectors on their potential cost savings.
Support for Land Value Taxation in Scotland is now a force to be reckoned with, and its proponents are numerous and well-respected. EarthSharing.org will be continuing to observe and encourage this debate as it develops.
Friday, May 19th, 9:00 am – Noon 22 East 30th Street, New York, NY 10016
We would like to invite you to an exciting event in New York City on how natural resource policy has created enormous environmental and social problems. Don’t miss the chance to be a part of this vital ethical and economic debate that will shape policy dialogue for years to come. You can also register to join the event via livestream. For further information email: email@example.com
“In a historic step forward for the land reform movement in Scotland, the party’s spring conference unanimously backed calls for a tax on ownership to end the feudal ownership system that has endured in the country for centuries.”
“The amended motion said the government “must include exploring all fiscal options including ways of taxing the value of undeveloped land” in its gradual land reform programme.”
“These views largely depend on whether they view the One Percent as innovative, smart and creative, making wealth by helping the rest of society – or whether, as the great classical economists wrote, the wealthiest layer of the population consist of rentiers, mak ing their income and wealth off the 99 Percent as idle landlords, monopolists and predatory bankers.”
“A case in point is the Scottish economist Angus Deaton, author of The Great Escape: Health, Wealth, and the Origins of Inequality. (2013). Elected President of the AEA in 2010, he was given the Nobel Economics Prize in 2015 for analyzing trends in consumption, income distribution, poverty and welfare in ways that cause no offense to the wealthy, and in fact treat the increasingly inequitable status quo as perfectly natural and in its own kind of mathematical equilibrium.”
“The social instability caused by vast economic disparities is likely to only grow deeper under the pressures of climate change and automation.”
“We urgently need to design a new framework that delivers greater social and economic equity. Some economists and activists are proposing Universal Basic Income, a guaranteed minimum payment for everyone, as a way to ensure a guaranteed minimum for people to live on. We believe that a universal basic income is only the first step in making our economic system more equitable.”
“In designing Universal Basic Assets we take into account access to traditional physical and financial assets like land and money, as well as the growing pools of digital assets (data, digital currencies, reputations, etc.). We also recognize and assign value to exchanges we engage in as a part of maintaining the social fabric of our society but that do not currently carry with them monetary value (caring, creative output, knowledge generation, etc.).”
“The real problem is an emasculated housing market unable to absorb the new arrivals without shedding older residents. The only solution is to take supply off its leash and finally let it chase after demand.”
“Discretionary permitting limits how quickly the housing stock can grow. Land use restrictions can increase the price of housing by as much as 140% over construction costs. Relaxing–if not abolishing–these types of restrictions would be hugely beneficial.”
“The most realistic plan would be to retire San Francisco’s property tax in favor of a land tax and make the change revenue-neutral. Considering the city’s property tax rate is barely over 1%, a revenue-neutral land tax probably wouldn’t deliver the sun, the stars, and the moon like it would at much higher levels. That said, it would still be an improvement over the existing property tax.”
“Anyone who has studied economics will be familiar with the ‘factors of production’. The best known ‘are ‘capital’ (machinery, tools, computers) and ‘labour’ (physical effort, knowledge, skills). The standard neoclassical production function is a combination of these two, with capital typically substituting for labour as firms maximize their productivity via technological innovation.”
“But there has always been a third ‘factor’: Land. Neglected, obfuscated but never quite completely forgotten, the story of Land’s marginalization from mainstream economic theory is little known. But it has important implications. Putting it back in to economics, we argue in a new book, ‘Rethinking the Economics of Land and Housing’, could help us better understand many of today’s most pressing social and economic problems, including excessive property prices, rising wealth inequality and stagnant productivity.”
“Today’s economics textbooks – in particular microeconomics – slavishly follow the tenets of marginal productivity theory. Even progressive economists such as Thomas Piketty have fallen in to this trap. Once you strip out capital gains (mainly on housing), Piketty’s spectacular rise in the wealth-to-income ratio recorded in advanced economics in the last 30 years starts to look very ordinary.”
“Understanding who owns this country has been a utopian project for at least a century and a half. In 1872, in an effort to disprove radicals’ claims that only a tiny elite dominated the landed wealth of the nation, Lord Derby – a major landowner himself – asked the government to undertake a proper survey. The Return of Owners of Land – or “Modern Domesday”, as it became known – was the first comprehensive assessment of land ownership in Britain since William the Conqueror’s swag list after the Norman conquest. But far from dousing the demands of the radical land reformers, the survey lit a fire under the issue.”
“So if the answer to who owns England isn’t available from existing public data, how to find out? Well, the Victorian land reformers did leave us one other legacy: the Land Registry, whose job it is to gradually register who owns all land in England and Wales. Yet 150 years after it was founded, it’s still not completed its task – around a fifth of all land remains unregistered. And though the Land Registry has thankfully just survived a government attempt to privatise it, it remains a very closed public service: you have to pay £3 just to find out who owns a single field. Paying to find out who owns the whole country would cost a fortune.”
“The government’s recent housing white paper heralded some welcome steps in this direction – announcing that the Land Registry would soon make freely available its datasets on land owned by UK companies and offshore firms. But that’s only a fraction of the total. Aristocratic families, who almost certainly still own the great majority of England, will be exempt – since their huge estates are invariably registered in an individual’s name, if they’re registered at all.”
“Each parcel of land in the UK is assessed for its potential annual rental value. Remote, rural farmland will have a low rental value. Prime city centre real estate will have a much higher rental value. A tax is then levied based as a percentage of the annual rental value of that land (in its unimproved state).”
Friday, May 19th, 9:00 am – Noon 22 East 30th Street, New York, NY 10016 Sponsored by the Robert Schalkenbach Foundation, the International Union for Land Value Taxation, & the American Journal of Economics and Sociology
This is an exciting event in New York City on how water and other resources have been poorly managed. Don’t miss the chance to be a part of this vital ethical and economic debate that will shape policy dialogue for years to come.
The 37th Conference of the Council of Georgist Organizations is sure to be an unmissable event. The conference is focused on networking, meeting old friends, recharging and enriching understanding. Speakers include Don Killoren, Andrew Theising, Erich Jacoby-Hawkins, Ted Gwartney, Gordon Abiama, Jeff Graubart, Nic Tideman, Karl Widerquist, Vitnarae Kang, Anthony Werner, Bill Batt, Brendan Hennigan, Dan Sullivan, John Kelly, Mike Curtis, Josh Vincent and Lindy Davies.
Cosponsored with the Urban Institute, this event will offer insights from two recent research projects funded by the John D. and Catherine T. MacArthur Foundation that explore the links between shocks to urban housing markets and central cities’ finances.
May 5, 2017 Lincoln Institute of Land Policy 113 Brattle Street, Cambridge, MA
The economic growth and development of urban areas are closely linked to their revenue sufficiency and fiscal prospects. This research seminar offers a forum for new academic work on the interaction of these two fields.
Walking tour: Land, villains, and revolutionaries: a social movement history
To start discussing Land Value Tax (LVT), and other ways of making a difference in the world, join our discussion group on Facebook. Here, you can ask questions about Earth Sharing, LVT, ending poverty, and protecting the environment. You will be able to talk with professors and regular people in the larger Earth Sharing community. It is also a gateway to other discussion groups, a market place of ideas for making the world a better place.
We don’t necessarily endorse any of the viewpoints in these discussions on Facebook, but they are sure to make you think.
PROGRESS IN MARCH
EarthSharing.org website hits in March 32,235
Total email subscribers to date: 20,722
Dear Earth Sharers,
We hope you’ve enjoyed all of the content we’ve been producing. It’s truly a labor of love. We’re making a lot of progress, with 600-700 new newsletter subscribers each month. More than 20,000 of you have graciously allowed us into your lives.
Next month, we will be including links to our new segment on Stanford University Radio, KZSU, entitled The Henry George Program. We look forward to getting your reactions to the show and increasing your involvement in the cause to give everyone equal rights to the bounty of nature, something we believe is fundamental to ending poverty, saving the environment, and unleashing human progress.
Jacob Shwartz-Lucas EarthSharing.org Robert Schalkenbach Foundation
We would like to invite you to an exciting event in New York City on how natural resource policy has gone so wrong. Don’t miss the chance to be a part of this vital ethical and economic debate that will shape policy dialogue for years to come.
Friday, May 19th, 9:00 am – Noon 22 East 30th Street, New York, NY 10016
For further information and/or to attend email: firstname.lastname@example.org
“To make the economy work on behalf of citizens and nature, the special privileges of the past will have to be terminated.” The words of Frederic S. Lee, editor of the American Journal of Economics and Sociology, elucidate the powerful implications of a new piece of writing from Georgist economist Mason Gaffney.
Gaffney’s Nature, Economy, and Equity: Sacred Water, Profane Markets appears in the November 2016 edition of AJES and challenges the fundamental assumptions of even the most liberal economic dogmas of the past century. Lee says that by recognizing the tendencies toward capital accumulation inherent in laissez-faire capitalism and enshrining the sanctity of nature at the forefront of any policy discussion, Gaffney has produced “principles of universal relevance”.
To foster an ongoing public dialogue on Sacred Water, Profane Markets, the Robert Schalkenbach Foundation is co-sponsoring an event in New York on May 19, with the International Union for Land Value Taxation, a United Nations ECOSOC NGO; The Robert Schalkenbach Foundation; and The American Journal of Economics and Sociology.
This event will explore how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
FROM THE ORGANIZERS
Sacred Water, Profane Markets should be of particular interest and provide ground-breaking insights to any professional, NGO, or others with an interest in or responsibility for managing, funding, using or caring for substantial bodies of water for municipal, domestic, commercial, agricultural, industrial, amenity, leisure or hydropower purposes.
Two of our speakers, David Triggs and Mary Cleveland, will address the economics and management of water. They will describe how a just system of charging for nature’s services can not only protect nature from excessive use but also make the market for produced goods and services healthier by preventing the development of monopolies that impede economic efficiency and destroy social harmony.
Drawing upon many years of practical experience in both developed and developing countries and extensive academic research they will show how a healthy balance of demand management and market forces may be used to ensure both safe drinking water for all in water scarce cities and the optimum sharing of water between agricultural, industrial and commercial users of water. They will provide fresh thinking with regard to how the cost benefit analyses that underpin major water related capital projects throughout the world may be improved to avoid unnecessary waste of natural, human and financial resources. The principles underpinning this approach apply to wider economic and public revenue issues.
Our third speaker, David Michel, has researched and written about transboundary water governance, maritime resources management, and water conflict and cooperation. He is co-author of Toward Global Water Security: US Strategy for a Twenty-First-Century Challenge. He will share his views about the water ethics and policy presented by the first two speakers and how these might make a valuable contribution to a global water grand strategy formulation. The intention of Dr. Michel’s current work on global water security is to maximize the potential for civil society and the private sector to speak with a cohesive voice on water ethics and policy.
Following the three main speakers several designated respondents will draw on their own insights and experiences in water ethics and management in giving their input to the proposed reconciliation of Sacred Water and Profane Markets. The main speakers and the respondents will then participate in a plenary round table discussion on a number of key points and questions raised by forum attendees.
“Housing is at the centre of an historic structural transformation in global investment and the economies of the industrialized world with profound consequences for those in need of adequate housing.”
Adequate housing is a human right, and securing it for all people is not only a moral imperative, it is one of the 17 Sustainable Development Goals that have been developed by the United Nations and targeted for achievement by 2030. All signatory member states are bound to pursue this goal in earnest.
Leilani Farha is the U.N. Special Rapporteur on adequate housing, and she has reached some unsettling conclusions about the worsening of what she terms the “financialization of housing” in a report presented to the U.N. Human Rights Council at the beginning of the month. Prosper Australia’s (Earth Sharing Australia) Speculative Vacancies report is held up as a primary source of evidence regarding the scale of the issue, a study that EarthSharing.org is excited to replicate in the United States as well.
After the enormous losses incurred from the 2008 global financial crisis – by homeowners, banks, and taxpayers – it seemed reasonable to expect that any legislative response would crack down on the deficiencies in the system that had made such a crisis possible. In a nutshell, the opportunities for corporate finance to turn housing debt into a commodity were left unchecked, and the practice of packaging mortgage-backed securities into enormous bundles and selling them as an investment became widespread.
According to Farha, the resulting catastrophe of mortgage defaults and foreclosures actually ended up being a huge win for corporate finance, as companies were able to sweep up billions of dollars worth of property at fire sale prices from state governments who had been forced to assume responsibility for high-risk mortgages.
“Individuals and families who were affected by the crisis were often blamed for taking on too much debt and new rules and regulations were put in place to restrict their access to mortgages. Austerity measures cut programs on which they had relied for access to housing options, and the march towards the financialization of housing continued.”
There is a need now more than ever to reclaim housing as a social commodity and to disincentivize its treatment as a cash cow, an asset for the accumulation of wealth and an easy tax haven for the world’s super-wealthy.
Farha outlines the way in which a vast amount of investment properties are being left empty and suggests that even without occupants, a property can generate significant value for the owner. In Melbourne, a full 20 percent of investor-owned properties are vacant, equating to about 82,000 homes. In London, the wealthy suburbs of Chelsea and Kensington saw a 40 percent increase in vacant properties between 2013 and 2014.
“In such markets, the value of housing is no longer based on its social use. The housing is as valuable whether it is vacant or occupied, lived in or devoid of life. Homes sit empty while homeless populations burgeon.”
Farha says there is a “gross imbalance” between the resources that governments devote to assuaging the needs of the ownership class and what is a “complete deficit” of attention paid to those who cannot meet their needs for a safe, affordable place to live. The situation is likely to worsen with the proliferation of international trade agreements, which tend to have the effect of intimidating governments out of regulating investment in property and the development of luxury rentals. A precedent has already been set by cases of treaty arbitration wherein millions of dollars in damages have been awarded to foreign investors.
The human right to adequate housing is enshrined in the 1948 Universal Declaration of Human Rights and half a dozen other international conventions and covenants. This right, under our present system, is in constant conflict with the use of land as a store of wealth and a means of capital appreciation, and governments have made the problem worse by providing tax subsidies for homeownership, tax breaks for investors, and bailouts for corporate finance.
A system of Land Value Taxation would discourage such ubiquitous property speculation and exert downward pressure on prices. Confronted with tax bills that more accurately reflect the public value of centrally-located land, speculators and other stakeholders will find it much less attractive to hold onto housing as a deposit box for wealth. The revenue generated from this tax could be used to revitalize the stock of public housing, though this would simply be a cherry on top of the more significant shifts in incentives created by the Land Value Tax.
Over the last 60 years, dozens of studies on patenting, innovation and economic growth have found that patents foster ex ante innovation — meaning, they induce people to invent because of the prospect of reward. This causal relationship is widely accepted, and some studies have also shown upticks in metrics like foreign direct investment following implementation of strong patent laws.
The patent system is also one of the most effective tools for knowledge-sharing and technology transfer ever devised. A 2006 study by French economists Francois Leveque and Yann Meniere found that 88 percent of U.S., European, and Japanese businesses were reliant on the information disclosed in patents to keep up with technological advances and direct their own R&D efforts.
But neither profit nor innovation is enough to justify the full extent of the patent race; that is, a “first come, first served” approach to patent law that does not allow for the same discoveries to be made independently. It is also hard to argue for the way in which the current system encourages breaking patents down into smaller segments that can be exploited for gain on the basis of blocking further innovation.
Patent law requires careful reform that balances the need to keep U.S. innovation from disappearing overseas and the opportunities for boutique innovators to create without fear of excessive litigation.
The relationship between patents and innovation remains uncertain in some ways. One problem is that very often the measure for innovation is the patent itself, and there exists an assumption that a higher number of patents will lead to more innovation.
A 2009 study utilized an online game called PatentSim, developed to see how innovation was affected by different patent systems. It featured an abstract model of the innovation process, a database of potential innovations and a network through which users could trade and enforce patents. The software compared a traditional patent system, a “commons” system with no patent protection, and a system with a combination of patents and open-source protection.
The initial results of this study were “inconsistent with the orthodox justification for patent systems”, showing that full or partial patent systems generated significantly lower rates of innovation, productivity, and societal utility than a commons system. Even in repeat studies in which participants knew enough about patents to generate more innovation, the “pure commons” system still returned higher productivity and social utility. Interestingly, the creators of PatentSim decided to patent it.
In a 2013 Wall Street Journal article, Harvard Business School’s Rosabeth Moss Kanter said the patent system was “the innovator’s friend”, but not the friend to a general public that wanted innovations to be used for everyone’s benefit. In other words, innovation is a force for personal gain as well as social good, and often the balance is tipped in favor of one at the expense of the other.
“Industry giants can lock up ideas and sit on patents in order to discourage competition. We should favor “use it or lose it” rules that ensure that true innovators can’t be driven out of an industry because incumbents protect their turf,” Kanter said.
Under current regulations, patent holders are not penalized if they do not use their patents. This allows for the existence of entities like patent holding companies (PHC), patent assertion entities (PAE), and non-practicing entities (NPE). There are legitimate reasons for these kinds of organizations to exist, but many are what are known as “patent trolls”.
Patent trolls amass patents with the sole intention of filing infringement suits. The Patent Office has a habit of issuing vague patents, allowing the troll to threaten legal action against as many entities as possible and demand licensing fees running into tens or hundreds of thousands of dollars.
2015 was the biggest year to date for patent lawsuits, and two-thirds of these were filed by non-practicing entities. The prevalence of lawsuits of this nature drew attention from President Obama’s administration. A 2011 law, the America Invents Act, made it illegal to file a patent lawsuit against multiple defendants. President Obama also ordered the Patent and Trademark Office to require more specific information about patents and infringements to protect businesses that were “simply using off the shelf technology”, according to the New York Times.
Forbes writer Matthew Herper asks whether there is really a “need to ‘fix’ the legal system that has enabled America to become number one in the global biotech, software, hardware, medical devices, energy, genomics, and nanotechnology industries”. Herper claims that reforms to the patent system are “well meaning in their search to restrain patent trolls, but have created tremendous unintended consequences”, most notably in medical biotechnology research and development. “Let us be clear: investments in the biotech industry are based entirely on patents. Without strong patents, we cannot raise money to find cures for disease.”
Earlier this year, we published a discussion of how any attachment of property rights to elements of biology should be treated with extreme care. The patent system is not ideal, but it’s best elements are vital to our economy. This complexity is perhaps described best by two famous economists, Fritz Machlup and Edith Penrose, who stated:
“If we did not have a patent system, it would be irresponsible, on the basis of our present knowledge of its economic consequences, to recommend instituting one. But since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it.”
No new technology can be manifest in a vacuum. That is to say, every so-called innovator is dependent on the accomplishments of countless others who have come before them. The societal need for innovation, and its fundamental dependence on past innovations, illustrates the need to capture some of the value of intellectual property for private gain and leave some for public good.
Patents offer an essential safety net to small businesses with new ideas and to high-cost, R&D-intensive research companies. After accounting for cost recovery and preventing blatant appropriation, however, our system of patents has a lot of unintended consequences for which to answer. If these are to be addressed, some kind of Patent Value Tax and public auction of unused patents should be implemented; in the same way that a Land Value Tax would see land changing hands until the right person could maximize its value, patents could be exchanged so that those most useful to society do not sit idle.
It is also worth considering that patents only report a final, positive result of a larger research process, thus hiding failures that others will likely encounter as well. If we are talking about innovation we should recognize the importance of failure, and that understanding what doesn’t work is also a part of technological progress.
The United Nations Special Rapporteur in the field of cultural rights has concluded that while patents encourage innovative research and development, they are also “dangerous” in their power to deny access and limit public participation in science and culture. The report concludes: “Where patent rights and human rights are in conflict, human rights must prevail.”
The town of Altoona began trying out the land value tax in 2002 on the recommendation of the Center for the Study of Economics. From 2011, land value tax completely replaced taxes on buildings.
Nevertheless, five years later, land value tax advocates don’t have clear examples to point to of projects or investments in the city that would have been made without the tax system in place, and the reform has been undone.
The incentive created by the city’s land value tax was limited because the county and the school district imposed property taxes. Another major problem was that the tax system was so unusual that potential residents and businesses struggled to understand the potential benefits of moving to or investing in the city.
In some cases, businesses might have been turned off by the relatively high rate of tax on land, not understanding that there was no rate of tax on structures.
The Modi government is introducing measures to encourage first-time home buyers, introducing tax incentives for self-occupied properties and rentals.
In the past, these tax incentives were capped for owner-occupied houses but notfor rentals. Therefore, a landlord could book the loss they suffered on lower rent, which helped in reducing their overall taxable income.
It is expected that this will bring new real estate to the market in turn bringing the prices down, which have already fallen by 30 percent after the demonetisation.
With the release of the London Finance Commission report, Assembly Member Tom Copley called for a Land Value Tax to replace the three basic property taxes: council tax, business rates and stamp duty land tax.
Copley said a Land Value Tax would discourage land banking, where developers sit on land waiting for its value to rise without building on it. This would incentivize the building of news homes quickly while raising much needed funds for investment.
Republican lawmakers have quietly laid the foundation to give away 640 million acres of national land to state governments. Critics fear this could eliminate mixed-use requirements, limit public access and turn over large portions for energy or property development.
The oil-rich Arctic National Wildlife Refuge could soon be up for sale. States with small budgets may be unable to invest in the management of these lands and decide to sell them off.
Areas at stake are managed by the Bureau of Land Management (BLM), National Forests and Federal Wildlife Refuges, and contribute to more than $600 billion each year in economic stimulus from recreation and 6.1m jobs.
A home for sale last year in San Francisco’s Sunset District came perilously close to redefining the very concept of a “fixer-upper.”
The place was not inhabitable in any way, and yet it sold for just under $1 million last February after just a short time on the market. In space-strapped San Francisco, the real value of real estate lies in the land.
Calculated based on a total land value in England of £1.842 trillion, residential properties would pay 79.5 percent of the tax, businesses 15.5 percent and agriculture 4.8 percent. Current Council Tax is unfairly distributed because it uses property bands.
On this basis, the top 1% of property wealth owners would be liable for 54% of the residential part of the tax assuming the tax is introduced at a flat rate for all. Land Value Tax, unlike Council Tax, is not a residency tax it is an ownership tax, so people in rented accommodation do not pay the tax.
Infrastructure Australia recommends that governments gradually get rid of stamp duties and tax land values over the long term, arguing it is the “fairest” way of raising money for new infrastructure.
A new train line that makes it faster for people to get to work will typically attract people to buy houses nearby, increasing land values. IA’s report said “there are serious challenges for any form of value capture based on property prices rather than underlying land values.”
Instead of looking at homes as investments, what if we regarded them like a TV or a car or any other consumer good? They would be somewhat cheaper in most places, where population is growing slowly. But they would be profoundly cheaper in places like San Francisco. That was the conclusion of a recent paper by the economists Ed Glaeser of Harvard and Joe Gyourko at the Wharton School of the University of Pennsylvania.
The paper used construction industry data to determine how much a house should cost to build if land use regulation were drastically cut back. Since the cost of erecting a home varies little from state to state — land is the main variable in housing costs — their measure is the closest thing we have to a national home price.
SOCIAL MEDIA HIGHLIGHTS
We don’t necessarily endorse any of the viewpoints in these discussions on Facebook, but they are sure to make you think. Tell us your thoughts, and feel free to submit images that more accurately reflect some of the concepts generated by the Land Value Tax Facebook community.
Since most of the economic rent in the world is actually captured by the wealthy, Charles D Allison attempted to construct a more accurate image showing how the rich capture a greater proportion. Exactly how much and what the standards for some of these terms are is unclear. It is clear however that rent privatization is much more stratified than either of these conceptual images would indicate. So, if you can create a more accurate image, reply with it or tell us what else you would improve about this one.
We now know that sugar, particularly high-fructose corn syrup, is the leading cause of the U.S. obesity epidemic. Two-thirds of adults and a third of children are considered overweight or obese, and the dietary choices that have created this crisis are often the result of understandable thrift. Our tax environment offers market-shifting subsidies to conglomerate producers of some of the worst things we put into our bodies.
Co-opting Noble Wartime Policy
Agricultural subsidies were used to great effect during World War II, as a way to shore up supplies of corn and wheat to prevent a shortage of troop supplies. These policies served their intended purpose, but without a timeframe, they were allowed to become entrenched by farming businesses which stood to benefit. The foods we are encouraged to eat today, and what we are told about nutrition and cardiometabolism, are in no small part influenced by lobbying from within the system created by wartime pragmatism.
The justification for subsidies today is that the U.S. government wants agriculture to be competitive globally. However, the choices American consumers are making have turbocharged healthcare costs related to obesity. So, two opposing goals are being pursued simultaneously, all while the agriculture industry preys on vulnerable people with cheap, unhealthy foods. A common response is the suggestion to tax sugary foods, but this may not be the best way to optimize incentives.
A study of subsidized foods and their relationship to cardiometabolic risk measured that overall, 56 percent of calories consumed were among the major subsidized food commodities – corn, soybeans, wheat, rice, sorghum, dairy and livestock. The study concluded that higher consumption of calories from subsidized food commodities was associated with a greater probability of some cardiometabolic risks. Therefore, better alignment of agricultural and nutritional policies has the potential to significantly improve population health.
The majority of subsidies go to commercial farms with an average income of $200,000 and average net worth close to $2 million, according to a report by Heritage Foundation senior research fellow Brian Riedl. The reality of agricultural subsidies is incongruous with their intent; instead of raising farmer incomes with higher crop prices, they promote overproduction and lower prices further.
Smallholder family farms are largely excluded from subsidies, and instead they finance consolidation and raise land values to prohibitive levels. In the decade preceding 2007, many agricultural subsidies were distributed to Fortune 500 companies, celebrity “hobby farmers”, and sympathetic Members of Congress, including:
$2,849,799 – John Hancock Life Insurance
$1,183,893 – International Paper
$534,210 – Westvaco
$446,914 – ChevronTexaco
$553,782 – David Rockefeller
$206,948 – Ted Turner
$225,041 – Senator Charles Grassley (R- IA)
$45,400 – Senator Gordon Smith (R-OR)
$161,084 – Representative John Salazar (D-CO)
A 2006 Washington Post investigation discovered 75 acres of Texas housing for which the owners could claim agricultural subsidies based on “historical rice production.” Over the past 25 years, rice plantings in Texas have plummeted from 600,000 acres to 200,000, in part because people can now collect generous rice subsidies without planting rice. This illustrates that once implemented, even a seemingly sensible subsidy can become a useless bureaucratic burden that must be repealed or risk becoming ridiculous.
The Sugar Conspiracy
Robert Lustig, a pediatric neuroendocrinologist at UCSF, says a person increasing their sugar consumption is a big problem because “sugar both drives fat storage and makes the brain think it is hungry, setting up a vicious cycle.”
More specifically, Lustig confirms that it is fructose that is harmful. Fructose is a component of the two most popular sugars: table sugar and high-fructose corn syrup. High-fructose corn syrup has become ubiquitous in soft drinks and many other processed foods.
According to the World Health Organization, food marketing has been shown to influence children’s dietary preferences and behavior, increase the risk of becoming overweight and obese and form habits which persist into adulthood.
Amanda Long, Director-General of Consumers International, says that “the majority of adverts seen by children around the globe are for heavily processed foods high in fat, sugar, salt and calories.”
Research in the science journal Nature concluded thatyoung children are not responsible for their food choices, and are incapable of accepting personal responsibility in amongst so many influences including parenting, social factors, and advertising. Obese children are ostracized by their peers, and their quality of life, as measured by self-reported distress, is comparable to those receiving cancer chemotherapy.
In September 2016, NPR reported that for the past five decades, the sugar industry has been attempting to influence the scientific debate over the relative risks of sugar and fat.
That these documents are so old only serves to magnify the implications of this ongoing corporate behavior. A report published in the JAMA Internal Medicine journal highlighted ways in which these practices continue.
Report co-author Stanton Glantz told The New York Times this sugar industry strategy of sponsoring research was a smart one, “because review papers, especially if you get them published in a very prominent journal, tend to shape the overall scientific discussion.”
The response from the Sugar Association was to say that at the time of publication, “funding disclosures and transparency standards were not the norm they are today.” In one recorded study, a finding of health benefits from a diet of less sugar and more vegetables was dismissed, because such a dietary change was not considered feasible.
In the aftermath of these revelations, the sugar tax debate ignores the more fundamental forces that have given agricultural mega-producers so much influence.
Sweetening The Deal
Subsidies are either going to artificially inflate farmland values and rents, or wind up in the back pockets of supermarkets. If the farming of certain crops is supported by a failsafe government subsidy, supermarkets will see no need to reimburse farmers for the full cost of production, resulting in lower prices and stagnating incomes.
Under a system of Land Value Taxation, all production would be tax-free and, in a sense subsidized. Other foods could compete with corn, and we might experience a decrease in the ubiquity of high-fructose corn syrup in cheap, readily available processed foods.
Farmland is not particularly valuable in comparison to its urban counterpart, so many farmers could expect to be better off under such a policy. Nevertheless, a Land Value Tax would also encourage small-surface-area, horticulture as opposed to extensive, land-wasting monoculture that is subsidized by the public purse. Not only that, it would create a lot of jobs in sustainable farming, since taxes on labor would be removed in a pure Land Value Tax system.
What if there was a set of questions that could predict with a high degree of accuracy your political views on a variety of issues? Social scientists suggest that we process information based on our pre-existing worldviews. In other words, our cultural outlooks shape our thinking. Cultural Cognition Theory suggests that this can be used to predict perspectives and help us understand how they form.
Hotbed issues such as climate change continue to draw political battle lines among the general public, despite scientific consensus. Even neutral information is processed through our own individual political filters. But why? Addressing this question is vital for understanding public perceptions of risk and building support for crucial new policy. Is it a lack of credible information, a failure to communicate evidence effectively, or something else entirely?
Dan Kahan is a distinguished professor of law and psychology at Yale University whose research has been focused on risk perception, science communication, and applications of decision science to law and public policy. He is part of the Cultural Cognition Project, examining the impact of group values on perceptions of risk. Across a number of studies, his research has explored public divergence over climate change and scientific expertise in general.
The cultural theory of risk was developed by Mary Douglas and Aaron Wildavsky in the 1970s, asserting that people form risk perceptions and beliefs that are influenced by and harmonious with their ways of life. A simple example is the “white male effect”, which is a propensity for Caucasian men to perceive social threats as less significant than do women and minorities.
Kahan’s research has concluded that people form perceptions of risks to society that emphasize their worldviews and cultural outlooks. Thus, political polarization occurs surrounding contentious issues despite the presence of empirical data and scientific consensus. In analyzing how and why these perceptions form, this kind of research can offer insights into the best ways to shape and inform public opinion on risks to society, and to develop and implement better policy.
Intuitively, support for public policies that address societal risks like green technology, vaccinations and gun control should increase as people become aware of and sympathetic to these issues. The problem is that facts are less important than values in the formation of perceptions, and Kahan argues that “identity-protective cognition” causes people to dismiss information that conflicts with their values as a kind of “identity self-defense mechanism”.
Cultural cognition is evaluated through attitudinal scales, which Kahan says “should be thought of as measures of latent or unobserved dispositions, for which the items that make up the scales are simply observable indicators.”
Two continuous scales rank attitudes along two dimensions, referred to as “grid” and “group” ways of life. The first scale, “Hierarchy-egalitarianism”, runs from “high grid” individuals who support the maintenance of status-based systems through to “low grid” individuals who believe entitlements should be based on merit rather than position.
On the second scale, “Individualism-communitarianism”, individuals classed as “weak group” expect to fend for themselves while those classed as “strong group” value solidarity over competitiveness. Responses in agreement or disagreement with value statements are aggregated to form continuous “Hierarchy-egalitarianism” and “Individualism-communitarianism” worldview scores.
Cultural cognition research has revealed a tendency for people to perceive knowledge, honesty, and shared interest in experts who they believe to share their values. A common idea in science communication is that evidence of environmental threats has been ineffectively conveyed to the public, or that scientific literacy is too low. However, it has been shown that polarization over environmental threats is actually greatest among the science-literate. Dramatic public division on these issues is not a result of incomprehension, but instead stems from a distinct cultural conflict of interest.
A 2010 study on perceptions of HPV vaccine risk showed that people will selectively accept evidence to validate previously held beliefs, which suggests that even a balanced argument may increase polarization in people with opposing values. People also base their perceptions of expert credibility on values rather than the content of any argument. The study showed that if a person hears an argument they are predisposed to reject being made by an advocate whose values they share or vice versa, polarization shrinks to insignificance.
Kahan’s research demonstrates that bombarding the public with information or expert evidence on social risks can create a backlash and thus become counterproductive. This is likely to occur in people regardless of their political party or cultural belief system. To reduce combative polarization, it is more effective to present a culturally congenial solution that fits within prescribed worldviews.
As Kahan puts it, “don’t try to convince people to accept a solution by showing them there is a problem. Show them a solution they find culturally affirming, and then they are disposed to believe there really is a problem in need of solving.”
Cultural cognition theory has useful applications in the context of Earth Sharing and Henry George’s ideas about Land Value Taxation. While presenting any policy argument based on a demonstrable problem is liable to be rejected on the basis of predetermined values, presenting the same policy argument framed around the solution and decorated with sympathetic values is likely to succeed. Proponents of significant political change are too often focused on highlighting risks that they believe need to be addressed, failing to speak to people’s core values. In the absence of a framework of values, the substance of the message is lost to partisan interpretations of the supposed risk.
In 2010, the world’s 62 richest billionaires collectively held $1.1 trillion in wealth. At the same time, the poorest half of the world’s population held wealth amounting to $2.6 trillion. Just six years later, in 2016, those 62 billionaires had amassed a further $660 billion, and the poorest half had been stripped of the equivalent of more than $800 billion.
This should be the dying breath of trickle-down economics. Ahead of the World Economic Forum earlier this year, Oxfam Great Britain chief executive Mark Goldring said that “it is no longer good enough for the richest to pretend that their wealth benefits the rest of us when the facts show that the recent explosion in the wealth of the super-rich has come at the expense of the poorest.”
Oxfam senior economist and former special adviser to President Obama Didier Jacobs published a discussion paper in November 2015, called Extreme Wealth is Not Merited, in which he detailed the “six rungs” of the rent-seeking ladder: crime, cronyism, inheritance, monopoly, globalization, and technology.
He argues that few, if any, of these rungs allow a person to become extremely wealthy based on merit, and that “meritocracy calls for talented people to be rich, but not extremely so”. In an analysis of the wealth portfolios of the Forbes list of billionaires, Jacobs offers insight into the relative importance of each rung:
“Fifty percent of the world’s billionaire wealth is found to be non-meritocratic owing to either inheritance or a high presumption of cronyism. Another 15 percent is not meritocratic owing to presumption of monopoly. All of it is non-meritocratic owing to globalization.”
According to Jacobs, for the world’s richest, wealth begets wealth, and clearly the most prosperous avenues to enormous wealth are through currying favor with politicians or simply receiving a fortune as a hereditary right. All billionaires have benefited from globalization, population, and economic growth. Jacobs suggests that the world will inevitably see its first trillionaire in coming decades, and it will be the result not of some extraordinary talent but of continued growth in the global economy.
In a February 2016 interview with Inequality.org, Jacobs compared modern wealth with the merit of Johan Gutenberg. “He invented the printing press in 1439. Most of us would agree, I think, that the printing press amounts to an invention as least as important as Google. Yet Gutenberg did not become a billionaire…because the world economy in the fifteenth century was simply too small and too fragmented to support any billionaire fortunes.”
Jacobs says the idea of meritocracy makes sense for the middle class, and “an outstanding nurse is likely to make more money than an average one and would deserve that extra income”. But the kind of extreme inequality of wealth we see today cannot be justified by the same concepts of meritocracy, as these fortunes are so dependent on collective resources.
Henry George’s definition of land was actually very broad, encompassing “all natural forces and opportunities”. In this way, we can see applications of his principle of shared utility to not just land and natural resources, but to intellectual property, and the forces of globalization and ongoing economic growth. That we should begin to see the existence of trillionaires while so many still struggle to live on wages and are taxed on their labor is a great injustice.
George promoted the idea of the Land Value Tax as a way to fairly distribute economic rent, what would otherwise be unearned wealth, concentrated in the hands of the mega-rich. He also advocated a guaranteed basic income or citizens’ dividend, and a policy of this nature should be funded by taxing the economic rent from land. This way, when public initiatives and global systems create added value for businesses and the rich, that value will be returned to the public instead of being lost to further private stockpiling.
Jacobs says that today, every single billionaire’s wealth “depends on having access to a large population that’s linked through a globalized economy”. Those massive increases in wealth are crystallized in high land values, especially in ritzy locations in major global cities like New York and London. The rich can’t take their land with them to the Switzerland or the Cayman islands.
“The more this global economy grows, the richer our billionaires get. This growth happens independently from any one individual’s effort and talent, so we can’t say that billionaires deserve the profits that go hand in hand with economic growth.” Much of what appears on the balance sheets as profits for productive activities is really land holdings in global hubs. By simply taxing the value of land, we could capture that surplus, without taxing any earned wealth or reducing productive incentives. There would be enough to fund all healthcare, schools, transportation systems, etc without any taxes on normal people. We could have all of the wealth creation of a purely capitalist system while realizing the noble dreams of socialism.
In 1931, historian James Truslow Adams said the American dream mandates that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”, regardless of social class or circumstances of birth. But what does that actually mean?
For some, the vagueness of the American dream concept makes it difficult to quantify. Identifying a more specific metric of focus would offer a clearer picture of American opportunity for prosperity and success, and an upward social mobility for all people.
TechCrunch.com journalist Kim-Mai Cutler delivered a presentation at Earthsharing.org’s BIL Oakland 2016: Recession Generation event on July 9, in which she focused on the intersection between opportunity, technology, and land. To address this intersection, she referenced the research of Stanford University economist Raj Chetty.
Chetty analyzed the family income records of 40 million children over the past 20 years and calculated the likelihood of a child born into the poorest 20 percent (lowest quintile) of society reaching a higher quintile in income. Isolating geography as a determining factor, Chetty found that, for example, the city of San Jose provides the best opportunities for a poor child to reach the 80th percentile in income distribution, compared to all other cities across the country. This is shown in Figure 1.
Despite this, Figure 2 shows a trend reflected statewide and across the United States wherein median wages are increasing, but poverty is also on the rise, and homeownership is falling.
This trend in Santa Clara County flies in the face of conventional thinking, whereby poverty should decrease as incomes and opportunities multiply. If people are making more money, yet are less able purchase a home, the home price must be rising faster than the wage.
Similarly, apartment rent is skyrocketing. There is a lot of job growth, which would tend to indicate that labor is more in demand and that incomes will be higher, but most of the new jobs do not pay well – most make less than 50 percent of the average median income (AMI), as seen in Figure 3.
To add insult to injury, Figure 4 shows that many lower-wage workers fall well short of average asking rents, and are therefore unable to work and live in the same area. These people must either cohabitate or commute long distances in order to secure housing that they canafford.
These are direct consequences of Proposition 13, which greatly limits property taxation in the state of California. Proposition 13 defines what a parcel of real estate can be taxed, how much that tax can grow annually, and when the parcel’s value can be reassessed. Over time, this has created severe market distortions, as developers have no incentive to build additional housing that is affordable. This ultimately limits housing supply, forces workers to commute further from the urban centers, and leads to additional sprawl.
How does this all affect upward mobility? For starters, family commute times correlate with a child’s future success and earnings. Figure 5, from Chetty’s study, shows that a transit time of 15 minutes or less significantly correlates with a child’s upward mobility.
If the American dream is precipitated by upward mobility from one income quintile to the next, it is becoming an unattainable dream for an increasing percentage of the population. Without significant policy change, it will become impossible for many families to escape wage slavery.
Remedies do exist – some to resolve the problem altogether, and others to mitigate it. Metro San Francisco has seen a significant growth of working professionals choosing cohabitation, as well as the tiny house movement of 100-400 square-foot spaces. Unfortunately, these behaviors do not address the structural inequities and land misuse created by the current policy environment and Proposition 13.
With this in mind, it would be sensible for new housing construction in the Bay area to occur where economic activity is most concentrated, namely downtown San Francisco. Downtown areas tend to have the greatest land values, but traditional strategies for construction in the city center tend to be very expensive, politically treacherous, or otherwise ineffective. While cohabitation and tiny houses might make the area more affordable for a few, government must incentivize urban development in high-demand areas to effectively turn the tide of this crisis. To this end, the city and state must consider a Land Value Tax.
The economist Henry George documented this phenomenon of market exclusion 137 years ago in his seminal work Progress and Poverty. George demonstrated how rent increases faster than wages, and to expedite new construction, he recommended eliminating taxes on work and consumption and shifting the source of revenue to Land Value Taxation. His idea was to encourage landowners and developers to increase residential and commercial space in order to pay the Land Value Tax, while generating a respectable return and providing value to others. Land Value Taxation naturally becomes even more effective wherever land values are higher, like the urban core of cities. Implemented in cities, Land Value Taxation leads to a substantial increase in both living and working space.
California faces a unique challenge due to the limits imposed by Proposition 13, and overcoming this would require a difficult voter-approved constitutional amendment to completely overhaul the property tax system. State legislators and regional and city planners would be remiss not to consider a Land Value Tax, which has had demonstrated success in increasing residential space in the United States and abroad.
Watch Kim-Mai Cutler’s presentation below:
Images: Keynote presentation by Kim-Mai Cutler at BIL Oakland: Recession Generation 2016