The Henry George Program Ep. 8 – Stephen Barton And The Berkeley Landlord Tax

In this May 30, 2017, episode, we speak with Stephen Barton, co-chairman of the Committee for Safe & Affordable Homes, established to support passage of a windfall profits tax on residential landlords. Last November, Berkeley passed Measure U1, nicknamed the “Landlord Tax.” It increased the tax rate for landlords of five or more rental units. Behind the bill was Barton, who’s been working for affordable housing for decades. On the side, he’s been writing about the Georgist history of Berkeley’s leadership.

Barton explained that Measure U1 in Berkeley was targeted at residential landlords in the San Francisco Bay Area, who “are reaping tremendous windfall profits from rising rents and the result is a massive transfer of wealth from tenants to real estate investors.”

“So the idea was to recapture some of this windfall and put the money to use to create permanently affordable housing for the low-income tenants who are hardest hit by all this, and to help prevent homelessness.”

Value captured by landlords, even those owners of rent-controlled properties, was primarily the creation of the community due to its attractiveness and was thus owed to everyone, Barton said.

“We have businesses that thrive off of that diverse and creative culture and happen to be creating quite an economic boom in the area, so the entire community is making this a really great attractive place to live. And the result is you get increasing demand for moving into the area that’s increasing far faster than the housing supply can possibly increase, and the result then is that landlords — a small sector of the community, those people who own real estate  — are particularly able to take the value that the whole community has created and charge higher rents.”

Listen to the full conversation below:

Barton previously served as Berkeley’s Housing Director, and Deputy Director of the Berkeley Rent Stabilization Program. His work on affordable housing received a National Planning Award from the American Planning Association and an Affordable Housing Leadership award from the Non-Profit Housing Association of Northern California.

Barton also serves on the Board of the Bay Area Community Land Trust, which specializes in the development of limited-equity housing cooperatives and is active in East Bay Housing Organizations and Democratic Socialists of America. He is the author of numerous articles on housing policy and economics, as well as on the history of the Georgist and Socialist movements and has a Ph.D. in City & Regional Planning from the University of California, Berkeley.

Starting in 2017, EarthSharing.org has been collaborating with KZSU Stanford 90.1 FM to create a weekly hour-long radio show. The Henry George Program is a platform for interviews, roundtable discussions, and debates on economic justice and policy.

Tune in for challenging content on the housing crisis in the Bay Area and beyond, economic stagnation, widening wealth inequality, and environmental degradation ― can Henry George’s ideas offer a path forward that unfettered capitalism and incremental socialism lack?

An archive of the Henry George Program can be found here.

Featured photo: Committee for Safe and Affordable Housing

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The Henry George Program – Matt Krisiloff on Y Combinator, Basic Income, and LVT on The United Slate

In this episode, we have Matt Krisiloff of Y Combinator Research to talk about its Basic Income project, Y Combinator, and The United Slate, which features Land Value Taxation as a plank. Should these be viewed as separate, or two ideas that are fundamentally linked?

Krisiloff manages the basic income research being conducted by Y Combinator, a Silicon Valley-based start-up factory that was critical in the success of companies like Airbnb and Dropbox. Fast Company has called it “the world’s most powerful start-up incubator”.

As part of its nonprofit YC Research, Y Combinator is designing a long-term study to distribute basic incomes and understand the positive or negative impacts basic income might have in a US-based population.

Krisiloff said the pilot in Oakland had been operating for a few months now, and the preliminary results of the study could be available in just two years. The study will explore how best to distribute a guaranteed basic income, how to monitor spending, and whether recipients spend their money “responsibly”. The project also opened up a wide discussion of cost of living and the housing crisis in the Bay Area.

“To really be able to afford something like basic income, we’re going to have to dramatically lower the cost of living,” Krisiloff said.

“Particularly in California, policy could go a long way to alleviate the housing crisis. I think there is a lot of speculation, our zoning laws could be refined to allow for more building in certain areas. I think it’s far too easy right now to block development in communities for long periods of times, using laws on the books — such as CICA environmental regulations — inappropriately.”

Krisiloff has another project that ties directly into economic justice: in partnership with Y Combinator chief executive Sam Altman, Krisiloff is working on The United Slate, a policy project that has laid out ten policy goals for California. Housing supply and some form of land tax are planks of The United Slate.

Krisiloff said Land Value Taxation made a lot of sense.

“Longer term it seems like that is the most fair, equitable taxation system. I think as we go to a world where we should have more and more abundance created by smaller groups of people we shouldn’t be trying to tax incomes — output for work — we should be taxing the resources that are controlled by groups of people.”

“Land is something that is essentially micro-monopolies for whoever is holding it, and we should be taking the resource contributions from those people, rather than just letting the resources just accrue back to them for resource extraction.”

Listen to the full discussion below, and keep up with Sam Altman and Matt Krisiloff on Twitter.

Matt Krisiloff was a co-founder of Entom Foods, which aimed to derive sustainable and palatable food from insect meat, and of a mental health directory for therapists. He led teams that won the University of Chicago’s College New Venture Challenge in his first and second years for Entom Foods and another called CrowdCoin.

Starting in 2017, EarthSharing.org has been collaborating with KZSU Stanford 90.1 FM to create a weekly hour-long radio show. The Henry George Program is a platform for interviews, roundtable discussions, and debates on economic justice and policy.

Tune in for challenging content on the housing crisis in the Bay Area and beyond, economic stagnation, widening wealth inequality, and environmental degradation ― can Henry George’s ideas offer a path forward that unfettered capitalism and incremental socialism lack?

An archive of the Henry George Program can be found here.

Featured photo: Generation Grundeinkommen via Flickr

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A New Resource For Advocacy And Education

Over the years, many reputable researchers and organizations have dedicated resources to examining the theory and the implementation of Land Value Taxation. This system of tax is not just a good idea, it is a demonstrably effective tool for reducing speculation, driving down land prices, and incentivizing the optimal use of centrally-located land.

EarthSharing has compiled a database of high-quality research on LVT, which you can access here. This is not a gathering of platitudes presented by people who are influenced by their pre-existing support for such a policy; this is serious academic work that scrutinizes LVT alongside other tax structures and has reached the same conclusions. Consider the following from a 2015 OECD publication:

Property taxes can underpin sustainable land use. A pure land tax can help contain urban sprawl and foster the conversion of developed land instead of greenfield development. The land-use effects of property taxes – which also tax investment – are more ambiguous. Specifically designed “green” property taxes (soil-sealing taxes, development charges, etc.) can further help internalise land-use externalities

This list is far from exhaustive, and we strive to create a resource for advocacy and education that is as comprehensive as possible. If you can contribute to furthering the goal of this resource with additional research, please contact us and we will add to it.

Land Value Taxation Endorsements

Prosper Australia Research Institute (2016)
Australian Dept. of Infrastructure & Regional Development (2016)
OECD (2015)
National Tax Journal (2015)
International Monetary Fund (2013)
Institute for Fiscal Studies (2013)
Land Values Research Group (2013)
Prosper Australia Research Institute (2013)
Romney Institute, Brigham Young University (2012)
United Nations Human Settlements Programme (2011)
SERC, London School of Economics (2011)
Lincoln Institute of Land Policy (2010)
Kingston University School of Planning & Surveying (2009)
Motu Economic and Public Policy Research (2009)
Land Values Research Group (2007)
Oxfordshire CC & Vale of White Horse DC (2006)
Lincoln Institute of Land Policy (2004)
Australian Tax Forum (2003)
Lincoln Institute of Land Policy (2001)

Featured photo: Unsplash via Pixabay

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Land Value Tax Searches Peaked in June

Following the U.K. election in early June, we discussed how the Labour Party manifesto had proven to be a springboard for public interest in Land Value Tax. Anti-LVT misinformation and encouraging support for such a policy filled column inches and websites in the weeks preceding what was an astonishing result for the party.

Beyond media coverage, though, interest in LVT skyrocketed in online searches. Google Trends recorded the highest interest in its recorded history for the period May 28 to June 3, most concentrated in the U.K. but visibly spilling across the Atlantic to the U.S.

Google’s ‘interest over time’ value for a particular term is relative to itself, with 100 denoting the highest volumes in the term’s history. The spike in interest around the time of the U.K. election was more than four times greater than at any other time in at least the past decade.

It’s reasonable to conclude that the election was solely responsible for the jump, and this is corroborated by comparing the trend with searches for ‘garden tax’. This was the pejorative name given to LVT by many tabloid publications, based on the misconception that homeowners with gardens would be charged exorbitant tax bills. Take a look at the correlation below:

Irrespective of the bias in media coverage, any increase of this magnitude in independent searches is a victory for proponents of a Land Value Tax. It’s up to us to capitalize on public interest at times like this and make sure that information and discussion online are productive and accessible. We are always on the lookout for interesting trends, and anyone can analyze and compare Google trends using this tool. Let us know if you find anything noteworthy!

Featured photo: theanthonyryan arsp_064 via photopin (license)

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UK Election A Light On Land Value Tax

The U.K. snap election ended with the confusion and dissatisfaction of a hung parliament today, as the Conservative Party lost its majority and the Labour Party made significant gains. Results aside, this 51-day election campaign has been a huge test for public perceptions of Land Value Taxation.

Labour’s manifesto proved hugely popular and was a major talking point of the campaign. The replacement of council tax with a Land Value Tax was one of its planks, and this presented the media and the public with an opportunity to give LVT its due diligence. Evidently, tens of thousands of U.K. voters were not dissuaded from voting Labour by the idea.

By the end of the campaign, LVT was making regular appearances in newspaper columns and generating productive public debate. Last week, a letter to the editor from Rev. Paul Nicholson in The Guardian read:

Rents must stop taking the money needed for food, fuel, water and other necessities. Several parties’ manifestos gave land value tax a nod. The advantages are that land cannot be placed tax-free in an overseas bank, taxing land forces into use the 600,000 plots of unused land owned by the big builders, it is progressive, it relieves the incomes of hardworking people and companies by enabling the abolition of inefficient taxes such as council tax, business rates and stamp duty.

Predictably, there were also waves of misinformation delivered by the Conservative Party and infamous U.K. tabloid publications, quick to label LVT a “garden tax” that would potentially triple the tax bills of regular working families and force farmers to raise their prices.

Photo: The Labour Party.

These kinds of arguments have only given more coverage to the policy, and given experts the opportunity to clarify exactly what LVT does and does not achieve. Land Value Tax is now on its way to being a mainstream policy idea across the U.K., where for years disillusionment has been spreading regarding the ownership, under-use, and monopolization of land. Responding to a prominent criticism of LVT as a “Marxist tax grab”, senior lecturer at the Institute of Local Government Studies Chris Game had this to say:

There’s a minor irony here. The principle of land value taxation – the recognition that land’s true ‘location’ value derives less from the actions of the individual owner than from the wider efforts of the community in creating transport links, schools, hospitals and other infrastructure, and the community should benefit from this ‘unearned betterment’ part of the value accordingly – does indeed have history. Far from an invention of Corbyn’s Labour Party, it dates back well beyond Marx to at least the 18th Century classical economists, Adam Smith and David Ricardo: hardly proto-Marxists. Indeed, the bearded one himself dismissed it as a distraction from the historically inevitable transition from capitalism to communism.

While the millions who voted for progressive policy and economic justice in the U.K. this week will be left disappointed by the familiar government taking shape before them, this unexpected election cycle has propelled an otherwise unknown idea into the public consciousness. Land Value Tax will be a familiar proposal the next time it is put before voters, and debates on its efficacy will hopefully continue in the public and private domains.

Featured photo: Andy Miah via Flickr.

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The Henry George Program Ep. 3 – Introduction to Georgism with Kedar

In this April 25, 2017 episode, Kedar and Mark have a conversation about Georgism, Prop 13, and why this all matters.

 

Starting in 2017, EarthSharing.org has been collaborating with KZSU Stanford 90.1 FM to create a weekly hour-long radio show. The Henry George Program is a platform for interviews, roundtable discussions, and debates on economic justice and policy.

Tune in for challenging content on the housing crisis in the Bay Area and beyond, economic stagnation, widening wealth inequality, and environmental degradation ― can Henry George’s ideas offer a path forward that unfettered capitalism and incremental socialism lack?

An archive of the Henry George Program can be found here.

Featured photo: curtis.kennington Studio Microphone via photopin (license)

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Reversing Sprawl: Part II

Read Reversing Sprawl: Part I here.

Public Good Funding Public Good

Properties near Central Park are vastly more valuable than those even a few blocks away. Parks are among many publicly funded amenities that can raise the value of land because people want to be near to them. Since a Land Value Tax is designed so that governments obtain most or all of their revenue from it, any increase in tax revenue must come from increases in land value. This is why LVT is often thought of as a “single tax” or “central tax”.

To increase annual revenue, governments must construct parks, public spaces, and infrastructure to raise land values. This spurs the ‘Up & In’ private development discussed in Part I, but it also creates an incentive for government to develop and maintain such spaces and amenities.

Figure 1. Parks raise the value of land and are thus encouraged under Land Value Taxation.

People have to actually like the spaces in order for government to be able to increase revenue. Therefore, the nature of government intervention in urban planning and infrastructure will likely better reflect people’s needs under LVT, since government revenue will depend directly on the quality of public spaces. This concept applies to roads, utilities, amenities, and many other public works.

Using land value as the central or sole source of revenue aligns the government’s interest with that of the general public in many ways. Though it would improve government incentives in many ways, Land Value Tax would not render zoning completely unnecessary. There are many legitimate and illegitimate zoning restrictions, and these do not disappear ipso facto a land value tax.

If government spends money efficiently, in line with people’s needs, tax revenue will also increase vis a vis land value. For more information on this, see the Henry George Theorem. The theorem, supported by Nobelists Joseph Stiglitz, Willam Vickery, and others describes how governments can sustainably fund all activities, solely using a land value tax, through the creation and maintenance of public works. For an example, watch the video above.

Skyscrapers Everywhere? No.

Some people become confused when thinking about a Land Value Tax, believing it would cause tall buildings to be constructed in the middle of the Amazon rain forest or the Sahara desert. This mischaracterization stems from thinking that the incentive to use land intensively applies to areas with low land values.

If the land value is high, a landowner must generate more income to cover their high tax bill. This is often accomplished by constructing taller buildings, offering more units on which to collect rent. However, if the land value is low, the incentive to build is low as well. This will be reflected in the height of the building, or the lack of a building altogether in areas further from city centers.

Incidentally, even if the Land Value Tax paid by a particular owner is low, there is still an incentive to not own enormous tracts of land for mere speculation. Speculative gain becomes less attractive when any increase in land value will be accompanied by a heftier tax bill. This means that it is easier for small-scale farmers to get started, whereas the current tax system favors large monoculture agribusiness.

Who Pays And Where?

A progressive income tax is said to be pro-poor because those with more income pay more than those with little. In theory, this is a proxy for taxing all wealth progressively, but it is not so in practice. Land value taxation is progressive in a spatial sense. Those who own the best locations pay much more than those who own less valuable locations, and renters do not pay taxes at all. The Land Value Tax curve is very steep as you can see in Figures 2 and 3. This means that wealthy landowners pay a vastly higher tax than owners of outlying parcels.

Figure 2. Moving from the center of the city to the periphery, land value drops exponentially.

Of course, in practice land values do not make a perfectly smooth curve. Below is a land value map of Chicago, looking south toward the loop along Lake Michigan.

Figure 3. Chicago’s central land values depicted as proportional to the height of the colored blocks. Notice the similarity to Von Thunen’s land value curve. The land values in central Chicago are so high that the image cannot capture their full height. Credit: Lincoln Institute of Land Policy

Tax The Rich

A square meter of land in New York City will buy an acre of land in upstate New York. An acre of land in some parts of the Saharan desert are the price of a hamburger. Yet, $120,000 will only buy you a square meter of land in Pollock’s Path, Hong Kong. Who owns the most valuable land in Chicago, in the City of London financial district, or in New York’s Times Square and on Wall Street? There are not your average Joes. By shifting to a land value tax, the vast majority of revenue would come from the super-rich, not from regular working people. However, unlike taxes on income and abstract financial instruments, land can not be hidden in Swiss bank accounts and the Cayman Islands.

Some worry that multinational corporations will leave high-value areas for this reason. However, if a few decide to leave, it will be those that take up lots of space and hire few employees. Land values and taxes will drop until an equilibrium is reached. What remains are the productive businesses who use space for employees rather than cars, companies who pay their fair share of taxes and contribute to the economic vitality of their communities.

Leave Ma & Pa Alone

Productive businesses will get a boost. With zero taxes on wages and sales, hiring people and selling things will be less expensive. Such businesses will also benefit from lower rent, especially for the average ma and pa shop.

How Is A Land Value Tax Levied?

The Land Value Tax is not the same as a property tax, which is levied on both land and buildings. The Land Value Tax is levied on land only, not buildings. All land is taxed at the same rate, but landowners near the city center naturally pay more than those further away. Let’s imagine for example that the Land Value Tax is set at 10 percent of the market value for all land.

The amount of tax paid by each owner varies as a function of the land value only. The tax rate does not vary from plot to plot, and the value of the building on a given plot will not change the amount of tax paid by the owner.

Hypothetically, land in the city center assessed at $1,000/sq ft will pay $100/sq ft in Land Value Tax per year. Land relatively further from the city center assessed at $100/sq ft will pay $10/sq ft in Land Value Tax per year. Breaking the tax into monthly payments is ideal.

In order to have the effects described in this article, value assessments need to be accurate and the Land Value Tax needs to be high enough to generate the right incentives. LVT is not an additional tax, but a replacement for most other taxes like those on wages and sales. Pollution taxes and a few other good taxes should remain, but the Land Value Tax would be the primary source of revenue.

No Taxes, Just Rent.

So, what does all this mean for the average person? People who do not own land do not pay any taxes under Land Value Taxation, including wage or sales taxes. Public transportation could be made free because such services increase land values and thus revenue.

Many landowners would actually pay far less than they currently do in property taxes, since they own land at the periphery and beyond. Add to that the savings from other types of tax being eliminated, and their total tax burden would be drastically lower as a group. Almost all revenue would come from ultra-wealthy central landowners. If a rural area did gentrify quickly, landowners could protect themselves by purchasing insurance in advance. Those wishing to become landowners pay a lower purchase price, since buyers and sellers know that the Land Value Tax must continuously be paid.

Apartment Rent Decreases

We know that if the supply of something rises, the price falls. If more space is available in and near urban centers, ceteris paribus, the rent decreases, facilitating more urbanization and reversing sprawl over time.  Increasing the supply of residential and commercial units will likely become a much faster and cheaper process as advances continue to be made in modular construction and 3D printingBuildings can be stacked upon one another like legos as demand for particular locations rise or even fall. With the removal of taxes on buildings, labor, demolition, and other construction inputs, developers will be able to streamline the process. The seven-storey apartment building below was built in 11 days, even in the absence of Land Value Tax incentives.

High Rises, Not Just For The Rich

Fancy high-rises currently cause displacement and are often built with speculative returns in mind. Land values are going up, but these values are not being taxed away, as they would under Land Value Taxation. Rather than build for the people who need housing now, property owners build for the rich elite that will occupy the units later, perhaps years after.

Thus, whole buildings sit vacant in the United States, while entire cities sit vacant in China! Under Land Value Taxation, an urban landowner would have to run at an exorbitant loss to accomplish this, and would instead opt to provide relatively less extravagant units in the short term.

Under Land Value Taxation, new luxury developments or an influx of rich people to an area would spur the creation of more housing units nearby. The first thing to be pushed higher is land values, then tax, followed by development incentives, and the area’s housing supply.

This greater supply of housing units, in turn, lowers apartment rent relative to its high just before additional construction.

Protecting Tenants

The Land Value Tax in no way terminates or precludes existing safeguards protecting existing tenants from gentrification, safeguards like rent control. If rent control were still in place under Land Value Tax, developers would simply have to find ways to create more units at a fixed rent in order to generate the required income to pay the tax.

The land value tax would make rent control unnecessary, but that is a decision financially liberated renters can make for themselves after land value tax has been in place for a long while. Remove economic chains before crutches. Let people decide for themselves what protections they want to pare back after they have the luxury of thinking in terms of economic efficiency and utilitarianism rather than their day to day survival.

Tenants would benefit from land value tax for three reasons:

  • First, it would make cities more compact overall, so affordable housing units will tend to be closer to the city center than they are now;
  • Second, a city would have a stable and ample source of funding for public transportation, services, a citizen’s dividend, public renters insurance, etc.
  • Third, it would reduce the pervasiveness of land speculation, which causes the belief that housing markets don’t work and must be interfered with. The reason for this market failure is speculation, not new construction per se. Speculation, holds down supply, creating a sense of scarcity and desperation, like a few people hogging all the seats on the metro train -while pregnant women and the elderly are forced to stand, cramming together near the doors.

In truth, the Land Value Tax would be an enormously powerful tool for fostering inclusive communities that benefit everyone.

Featured photo: mrlins My rainbow view [HDR] via photopin (license)

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Reversing Sprawl: Part I

The Secret

Why is it that, every year, the average American spends almost an entire work week stuck in traffic? We are wasting so much time, money, and resources making our daily rounds, but when exploring better ways of doing things, conversations tend to be dominated by improvements to public transportation and more fuel-efficient cars. But to focus solely on transport is to ignore the elephant in the room: the problem is not getting from A to B, but that we live in cities where the long commute is necessary in the first place.

How can we create walkable cities with affordable housing, a strong sense of community, more parks, the means to innovate, explore, create art, enjoy nature, and all of the other things that make communities thrive? What’s the secret?

Posted at http://isNSFW.blogspot.com
Figure 1. Cities currently develop down and out, away from city centers, destroying nature and increasing time spent in traffic.

Underused And Over Capacity

Spaces can feel like they’re at capacity when in reality they are just poorly organized. This can be said of a single room in a house where clothes are strewn across the floor or of an entire city where vacant lots and short buildings are scattered across the landscape. It is possible to make better use of space on a macro scale so that everybody can have affordable housing near job opportunities, public transportation, and nature. Right now, vacant and underused sites make this very difficult, dividing neighborhoods, forcing sprawl to outlying areas, increasing demand for oil, and causing a great deal of ecological damage in the process. Car culture ensues; walkability and the social nature of space decays.

Remix Everything

Taxing land value, not buildings and improvements, encourages the development of city centers, allowing more people to be accommodated. This is because landowners require a higher return to cover the Land Value Tax and still make a profit. Centrally-located land in urban centers will attract the highest Land Value Tax, and this will create the strongest incentives to develop vacant and underused sites. Done properly, as the main or only tax, the Land Value Tax increases the housing supply and lowers rent in and near city centers. In the long term, urban sprawl can be reversed.

Up & In vs Down & Out

Our cities have taken a long time to get this bad, and it stands to reason that the remedy would be gradual as well. A high Land Value Tax, uniformly applied, can gradually reverse sprawl, putting vacant and underused land to its best use. There are many other positive social, environmental, and economic effects of Land Value Taxation, but many of these can only be understood by first understanding the spatial effects. Under such conditions, cities develop up and in toward the city center, instead of down and out, away from the city center (see Figure 2 below). Many will notice the fully intended pun here, as the shape of a city has a lot to do with human welfare. Under Land Value Tax, up and in produces good results, down and out produces bad results.

Image 2. Under land value taxation, cities develop up and in, not down and out. The top image represents how most cities develop. The bottom image represents how cities would develop over the long term with a strong land value tax. Owners to the left would pay a high tax, while those to the right would pay exponentially less tax. © Haskellot Illustrations

Land Value Tax And Sprawl

When there is no incentive for vacant lots to be developed into productive community spaces, there will obviously be fewer buildings. There will also be fewer parks since the surface area is wasted on vacant and underused sites. In a city with a Land Value Tax, not only is the vacant land filled, but buildings are consistently higher closer to the central business district. In the end, more people have the opportunity to live and work closer to the urban core. Starved of taxes on labor and other economic activity, a government must raise revenue by investing in beautiful and inspiring public spaces where people are willing to pay more for the privilege, thus bidding up the land value and in turn government revenue from the land value tax.

Figure 3. Vertical garden in Bangkok. Such use of all available building space in cities would be incentivized under Land Value Taxation. Photo: Roberto Trombetta via photopin (license)

Under this system, much of the wild areas destroyed by current sprawl (Figure 2) are reoccupied by trees and other natural features. Farms can also be closer to cities, reducing transportation costs. The Land Value Taxation city also has a great deal of green on buildings, as the need to maximize the land value incentivizes ecological architecture in the form of vertical, rooftop, and green wall farming.

How Land Value Taxation Improves Good-Density

 

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Figure 4. This image represents how 21 blocks of sprawling land use could be accommodated within 60% of one block in a central business district. A Land Value Tax incentivizes such land use. Credit: Ascher, Kate, and Rob Vroman. 2011. The heights: anatomy of a skyscraper. New York: Penguin Press.

Use It Or Lose It

Vacant lots, ground level parking, and paved or barren areas left unused are commonplace in our cities. In many cases, this is extremely valuable land in central business districts. If a Land  Value Tax is applied here, the total tax paid will be drastically higher relative to vacant land further from the city.

Imagine that you are the owner of that vacant lot. Will you continue to leave it unused if the tax bill is much higher? Without Land Value Taxation, you may have left the land vacant because you did not want to take a financial risk to build anything. You were simply waiting for the land value to rise. However, that rising value is taxed away under Land Value Taxation. Thus, you start to view owning the land as less of a passive investment and more as something that can only be beneficial when it is used well.

You must either start generating income from the land to pay the tax, or sell it to someone who will. Similarly, if you own a small building among centrally-located skyscrapers, you will be incentivized to build higher, to generate more income in order to pay the tax and keep what is left over. Use it or lose it, as the saying goes. While there would be no law that said the land must be used for a particular purpose, financial self-interest would drive landowners toward the most efficient use. They would inadvertently be doing what is in the best interest of everyone.

 

Figure 6. Under Land Value Taxation, the landowner of this McDonald’s in Manhattan would be incentivized to add residential and commercial units above it in order to pay the tax.

 

Cumulative Spatial Effect

Under Land Value Taxation, all landlords are faced with the same incentive: meet the market demand for space in the area or sell to someone who will. Cumulatively, more of the demand to use central locations is satisfied and there is less demand to use outlying areas.

The areas with the highest land values pay the highest Land Value Tax. Thus, these high-value areas also have the strongest incentive to build high, while those areas that are lower in value have increasingly less incentive to develop as the need for space was fulfilled in the city center. The incentive to build high exponentially decreases moving away from the city center.

Boost to Urban Farming

Farming can use very little land and still produce a lot of food. The video below shows a man who produced a million pounds of food in one year on only three acres. His permaculture farming techniques could be stacked in buildings closer to the urban core and/or near the city on community farms. Necessity is the mother of invention and such practices could become widespread with the proper economic incentives in place, i.e. a Land Value Tax. Such an operation requires a lot of labor but little land. Therefore, if taxes are shifted off wages and onto land, these activities become more practical and profitable.

 

More Idyllic Farming Communities Nearby

Environmentally destructive farming practices, such as widespread use of pesticides, only make financial sense when land is cheap relative to labor. The equation is reversed when taxes are moved off labor and onto land. Though cities would welcome more people, it would also make living and working in outlying areas much more affordable too. This is because the cost to buy or rent rural land would decrease and wages for rural workers would increase.

Ultimately, this would give people greater freedom with respect to where and how they lived. Today’s huge monoculture plantations would be broken up, and the resulting farms would employ more labor. An increased demand for such labor would further increase wages.

“No one would want more land than he could profitably use. Instead of scraggy, half-cultivated farms, separated by great tracts lying idle, homesteads would come close to each other. Emigrants would not toil through unused acres, nor grain be hauled for thousands of miles past half-tilled land.” – Henry George, Social Problems

Read Part Two.

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Won’t Somebody Think Of The Family Farmer?

My father’s side of the family were peanut farmers and Angus ranchers in west Texas and east New Mexico. I grew up riding horses, and was active in both 4-H and Future Farmers of America. I even took part in junior bull riding. I thought that Willie Nelson was just about the greatest guy ever. Ok, let’s admit it, Willie Nelson is an amazing person, both as a musician and in his desire to help people and animals alike. The kinds of people Willie really intends to help with his farmer benefit concerts are the type of people I would like to see helped.

Billions of taxpayer dollars go toward subsidizing crop production each year. So often, the supposedly vulnerable members of the agriculture community are held up as an example of why this is a necessary and compassionate policy. Not only is this perception false, but the very image of the struggling, cash-strapped family farmer is one that doesn’t really hold true in the 21st century. In the 1930s, about 20 percent of the U.S. population were actively working in agriculture. Today, it’s only one percent and the rate of new farmers entering the workforce is dropping dramatically.

When we imagine a family farm, we think of the painting American Gothic, Charlotte’s Webb, Babe, and the Hidden Valley Ranch Dressing label. It’s a reminder of how things supposedly ought to be, an idyllic country fantasy of modest people working and often struggling to provide the rest of us with food.

Photo: David Reece Gathering the Hay via photopin (license)

Everyone seems very concerned about the plight of family farmers these days. But, what does the term “family farmer” really mean? Pretty much everyone has a family. What I really want to know is: who are these farmers who don’t have families? They are the ones who really need help!

The USDA claims that 97 percent of farms are family farms. However, this classification relates to the ownership structure and the top-level management rather than who actually works the land. Just 59 percent of farm laborers and supervisors are U.S. citizens. Half of the hired labor on crop farms, according to the USDA, is people not even legally allowed to work in the United States. They are mostly Mexican migrants making abysmally low wages. Farming subsidies surely don’t go to these ‘family farmers’. Many probably miss their families desperately.

‘Small family farms’ as the USDA defines them, operate 48 percent of all farmland and own 47 percent of the value of farm real estate including land and buildings. In 2012, they held 40 percent of U.S. cattle, 89 percent of the horse inventory, and “grew 64 percent of all acres in forage production”. Yet, despite owning so much, they only produce 20 percent of agriculture sales and five percent of the country’s net farm income. Almost half of small farms are “off-farm occupation farms” which means that the operator’s primary occupation is not farming.

Farmers soak up about $20 billion in subsidies each year. Despite the rhetoric of “preserving the family farm,” the vast majority of farmers do not benefit from federal farm subsidy programs. According to Environmental Working Group president Ken Cook, most subsidies go to the largest and most financially secure farm operations.

The first thing to keep in mind is that two-thirds of the farmers counted by the census of agriculture do not get farm bill subsidies. So most farmers don’t get anything… And even within the third that does get money from farm bill subsidy programs, the very large ones dominate. And it’s getting more and more concentrated all the time.

Farming subsidies largely prop up wealthy landowners who are not what we would we would intuitively agree to be real family farmers at all. In general, the concept of the nice old landowning family farmers struggling to make ends meet simply doesn’t exist on a large scale anymore. The average farm household enjoys an income about 15 percent higher than that of the average U.S. family.

Cook goes on to describe to Mother Jones how historical subsidies can be enjoyed by subsequent generations who have no involvement in production:

Absentee owners exist everywhere. Let’s say you and I are brothers. You came to town to be a journalist, I came to work at an environmental group, but we both came from a farm family in Arkansas. If mom and dad give us 5,000 acres in their will, we don’t have to go back down to Arkansas and farm. We’ll get the direct payments automatically for that rice and cotton mom and dad kept growing, and on top of that we’ll get other payments.

What we should do is not only cut off these subsidies to landowners but tax the farmland in proportion to its value. This would enable us to fund government without taxing farm equipment and labor.

Photo: David Cornwell Favored by the Sun via photopin (license)

This would actually help small farmers, whose major startup cost is purchasing land. But wait, if you tax land, wouldn’t their costs go up? No. Unlike taxing consumer goods, which drives up prices, taxing land has the benefit of not reducing its supply. Somebody always owns it. Taxing it makes hobby ownership less attractive, thus actually lowering the purchasing price.

If you’re an economics wonk, here’s an explanation of taxes on inelastic supply:

If the taxes on labor and equipment were reduced while the cost to purchase land went down too, this would be a boon for families purchasing small plots of land to grow food. Their holding costs for land would be higher, but that would just incentivize them to use land more efficiently, like real family farmers used to do.

We could actually see a resurgence of what we would agree is real family farming. These families could hire a lot of workers and pay them more without the burden of paying wage and sales taxes. And if all of these families were using less land and employing more people at higher wages, family farms could thrive and new farmers could enter the market.

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Land Value Tax Now A Mainstream Policy In Scotland

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.”

Photo: Rob McDougall via Crofting Law Blog.

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.

Featured photo: J McSporran Drink and Drive via photopin (license)

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