Joshua Vincent: Land Value Taxation In Practice

Significant changes to any system of taxation require significant upheaval, and perseverance from citizens in and out of government. EarthSharing.org spoke with land value taxation proponent Joshua Vincent earlier this month, in a conversation covering attitudes towards land value tax, its applications, and the activism required to advance it. Watch the interview below, broken into three parts.

Vincent has been executive director of the Center for the Study of Economics since 1997. He has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to promote land value taxation, and has testified as an expert witness on its impact. Vincent is the editor and publisher of Incentive Taxation.

Best Valuation Methods

Vincent lays out best practices for calculating land values, most of which “rely on values that have already been established by the assessor.” By looking at sales prices in an area, particularly of vacant lots but also of derelict buildings set for demolition, a fairly accurate picture of land value can be obtained.

Building values are more complex, but still absolutely necessary for revealing land values: by subtracting building value from a property’s total value, the ideal taxable land value can be calculated. Vincent says that “if we want to help capital and labour escape taxation we have to figure out what the building is worth, because that’s where the labour and the capital goes.”

The most effective valuation systems are in states that “update their assessments on a fairly regular basis, and they also change the percentage of land value to building value to reflect essentially what the market is,” Vincent says.

Using the example of an Atlantic City casino, Vincent says that while 20 years ago the property value would have skyrocketed due to market dominance and profit levels, today that profit has been reduced substantially. “Right now the land value is half of the total parcel value, because the building has lost its revenue-generating capacity,” he says.

Approaching City Officials

A land value tax is not just an end unto itself to reduce inequities in wealth. Vincent says the focus of any campaigners for land value taxation should be its application to almost any pre-existing problems in a city.

“You have to identify a problem that the community suffers from,” Vincent says, whether it be blight, population loss, or perceived high taxes. City officials will usually tend toward enlightened self-interest, and the revenue-neutral tax abatements that a land value tax allow are attractive to public representatives whose priorities are job creation and citizen well-being.

“We would then propose: well how about a universal permanent abatement on all buildings, and not just new buildings, not just condos, but all buildings past, present and future?”

Joel Bedford SoHo 1 via photopin (license)
Joel Bedford SoHo 1 via photopin (license)

One discussion is not enough to effect real policy change, and Vincent says any correspondence should be followed up with a second meeting, further information, and a push for the council to crunch the numbers of what is a very practical, “nuts-and-bolts” policy.

“The mistake a lot of reformers of all types make is they march into a city council chambers or a mayor’s office and say ‘here’s a reform, do it’, and then they turn around and leave. I think what we are putting forward is something that is practical, it is doable, and you can demonstrate immediately how it is doable.“

Who Is Likely To Oppose Land Value Taxation?

Entrenched interests exist that have made fortunes extracting rent from populations without investing back into them, and these interests comprise the most likely and vigorous opponents of land value taxation. Vincent points the finger at speculative, “absentee owners who have a business model that depends on blight and the decay of the neighborhood.”

“A lot of people that oppose land value tax are people that have adopted business models and used tactics to thrive in a declining city,” he says. “You extract rent, literally, from the tenants but you don’t put anything into the property; you let it run down. That’s the successful business model. And they will oppose a land value tax, because their buildings have fallen apart to such a degree that they wouldn’t benefit from such a land value tax.”

Automobile-intensive businesses are another example, and in the past, owners of flat-surface parking lots have voiced opposition to changes of the tax structure. Vincent says these businesses feed off the value of urban land, itself the product of the people and the government, but “they’re doing nothing to create that value, and they’re doing nothing for the community”.

Vincent points out that some among these interests have actively funded anti-land value taxation campaigns, like in Allentown in 1997.

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Julia Bossmann: Challenges Of A Post-Work Society

BIL: Oakland 2016 Recession Generation was an Earthsharing.org conference in Oakland, California on July 9th. Foresight Institute president Julia Bossmann presented an argument for moving toward a post-work society, and the changes both economic and social that would be required to achieve this.

Bossmann recounts the incredible advances in artificial intelligence we are witnessing, whereby computers are writing original imitations of Shakespeare, dispensing effective legal advice and piloting cars through traffic. Bossmann believes that innovative scientific research will be next on the list of A.I. accomplishments.

Photo: FritzchensFritz AMD@14nm@GCN_4th_gen@Polaris_10@Radeon_RX_470@1622_M60J5.0A_215-0876204___Stack-DSC07208-DSC07236_-_ZS-PMax via photopin (license)
Photo: FritzchensFritz AMD@14nm Radeon_RX_470 via photopin (license)

“They have theoretically unlimited memory, they have a way faster speed of reading, they can find insights and facts from all across and then draw connections and find patterns. So now that we may have reached the limit in medical research – that one human mind may not be enough to figure it all out – having a machine mind may open the floodgates to finding out much more.”

Bossmann’s scenario of a post-work society presents significant economic challenges, with a disruption of millions of jobs across the professional spectrum. Truck drivers could be an early casualty, but many others earning an income by selling their time and labor stand to lose their current employment due to automation.

“How would a human even compete with someone who can drive for thousands of hours at no end and not ask for a salary?”, Bossmann says.

Photo: jurvetson Your Uber Otto has arrived via photopin (license)
Photo: jurvetson Your Uber Otto has arrived via photopin (license)

In general, a person’s income is derived either from time, or from ownership of assets like land and other property. Bossmann states that “once the time goes away, the only thing left is ownership. And we all know that ownership is not distributed in a way that all of us could just live on that alone; in fact, most of us need to sell our time to live”. A radical shift in how we think about ownership is required if society is to remain prosperous, Bossmann says.

As artificial intelligence progresses, those who own the valuable sites where A.I. research takes place, especially in Silicon Valley, will continue to become more disproportionately wealthy vis a vis the appreciating value of their land: rents they can charge, prices for which they can sell, etc. They will become wealthier not by doing the research and development themselves, but simply by owning valuable space in areas doing R&D. Regardless of Bossman’s predictions about the rate of A.I. progress and its replacement of human labor, a greater proportion of the wealth created will continue to go to owners of prime land.

Those who own prime locations already have a large advantage over wage earners, simply by their ever-appreciating real estate values. We have seen a huge explosion in labor-saving devices, wealth production, and wealth inequality in the last two centuries. These gains disproportionately go to the owners of property. So, there is already a need to share the returns from owning natural resources like land.

This need to redistribute the benefits of land ownership become even more obvious in Bossmann’s prediction of the future – where she assumes a lack of A.I. winters/ceilings, no comparable human intelligence augmentation, and where the Law of Comparative Advantage (between humans and robots) no longer holds. In such a scenario, obedient robots would simply produce enormous amounts of wealth, and this wealth would all go to those humans who own the natural resource inputs needed for A.I. The people who did not own land, or receive a dividend/basic income of some kind, would simply have no income.

Henry George, a prominent political economist and author from the late 19th century, argued that gains derived merely from the ownership of land and other natural resources should be considered the property of everyone, not just the title-holders. A system of land value taxation would be a pragmatic way of shifting the burden of raising public revenue from workers to landowners. It would be the obvious choice for funding a basic income that would protect people from unemployment now, and facilitate any kind of post-work society.

“Once we have figured out this dilemma, and we have machines that will do most of the work on the planet… we will look back and think that it was barbaric that people had to sell most of their living time on this planet, doing things they didn’t want to do,” Bossmann says. But reaching an economic consensus is not all that is required to reach a prosperous post-work society.

“Many of us define ourselves by our jobs, what we do for a living, how much money we make, all these things are important to so many of us. Are we willing to give up this kind of thinking for something better?”

Julia Bossmann is president of Foresight Institute, a think tank promoting transformative future technologies, and founder of Synthetic, a startup building A.I. of its own. Bossmann is a McKinsey Fellow, Singularity University GSP graduate and master of science in neuroscience and psychology. She lectures on Artificial Intelligence, hard technology, innovation, the future, and technology transforming society.

 

Photo: Tej3478 <a>Artificial Intelligence</a>. Licensed under Creative Commons.

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Simulation Could Explain Why People Reject Smarter Economic Policy

If variety is the spice of life, then why are so many of us drawn to old habits? You might think of this phrase in the context of your Friday night plans, but economists are asking it about our approach to public policy. Despite a growing body of research indicating that the structure of U.S. property taxes could be vastly improved, we tend to be content with the status quo, and it hasn’t always been clear why. But now, using experimental economics, a professor at the University of Delaware is undertaking a one-year study to identify why people don’t respond to smarter economic policy that could greatly enhance their lives.  

Joshua Duke, Professor of Applied Economics at the University of Delaware, sees a big problem with how cities and municipalities in the United States tax property. Governments levy taxes according to the value of buildings and productive activities on the land instead of the land value itself. While property tax is by far one of the best taxes, especially over wage and sales taxes, it is still not as good as a land value tax. A land value tax is virtually the same as a property tax except that the tax is on the land value only, not the building. Property taxes have been structured this way for centuries, but Duke believes we could implement an alternative tax structure that raises tax revenue and stimulates economic development. This would run in contrast to the existing tax structure, which tends to generate and exacerbate wealth inequality by taxing regular people for working and exchanging, but fails to tax unearned income like that from passively owning an ever appreciating vacant urban lot.

By InSapphoWeTrust from Los Angeles, California, USA (Lower East Side) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons
By InSapphoWeTrust from Los Angeles, California, USA (Lower East Side), via Wikimedia Commons.
Duke’s interest lies primarily in land value taxation, a theory popularized by 19th century economist Henry George in which taxes are determined by the inherent value of land rather than what sits on it.

“The idea is that if you’re going to tax anything in society, probably the best thing to tax is the value of land. Not the value of the improvements on land, like a house, just the value of land, and the reason is that it’s non-distortionary**. That means that it doesn’t provide the incentive to do less property improvement than is optimal,” Duke said.

Duke is not the only economist to advocate for land value taxation . Professor Joseph Stiglitz, Nobel Laureate in Economics and author of ‘The Price of Inequality’ is one such prominent proponent of a land value tax.  Stiglitz considers rent-seeking behavior, like the privatization of land values, to be the primary element that generates inequality of wealth. Other economists, like Mason Gaffney, Fred Foldvary, Nic Tideman and Fred Harrison also support implementation of land value taxation.

According to Duke,“[land value taxation] really would make society a lot better. It’s one of these major things we could do. We don’t have to create anything, we can just change the way things are taxed and [as a result] increase society’s wealth,” Duke said.

Determined to understand why land value taxation is so rarely used, Duke is harnessing the power of experimental economics. He is constructing a virtual city, in which land value taxation is financially advantageous to all citizens. The citizenry will be composed of 100 students of business, economics, and engineering. Ultimately, Duke hopes to identify why people, given the option of introducing financially advantageous land value taxation, tend to reject this tax structure.

San Francisco California Before the Sun Rises via photopin (license)
San Francisco California Before the Sun Rises via photopin (license)

“Economics is all about simplifying reality. What we’re trying to do is reduce problems to the fundamental incentives that we want to study. You have an amount of income; how much of your income do you devote to improving your land and how much do you devote to consumption? Then do you feel that, over time, you’re being treated fairly by the tax system and do you vote to reject it? So we set up a little democracy using our computer program where participants in our experimental economics platform can vote,” Duke said.

Duke is already planning his next study. After the completion of this one-year project, he will use his findings to identify ways to help citizens overcome political objections to land value taxation initiatives. Ultimately, he hopes to aid economists and policy experts who are eager to see cities and municipalities usher in smarter economic policy.

 

 



**Distortion, in the most basic sense of the word, simply means change. In economics, it is almost always considered a harmful mutation in an idealized market, where there is perfect competition and no externalities, e.g. almost all taxes vis a vis reducing productive incentives, misallocating resources, etc. Just as breaking up inefficient monopolies encourages competition and benefits the market, land value taxation encourages competition and captures distortionary externalities. This encourages behavior that is good for markets and for people, which is what Duke means when he says that land value taxation is “non-distortionary.” In fact, shifting to land value taxation actually increases productive incentives, what we might call a positive distortion.

 

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Creating Strong Towns With Localized Self-Government

BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th in Oakland, California. Keynote speaker Chuck Marohn presented his experiences as an engineer, city planner, and founder of the non-profit Strong Towns to explore the problems with large, specialized systems of government, and the case for localization.

In a world where city planners and engineers must work within a narrow vision on the same sorts of projects, Marohn says there is a disconnect that only leaves space for endless repairs and fix-ups, and very little room for real creative thinking or new technology. With many cities struggling financially or going broke, Marohn makes a case for innovation that not only can increase the productivity and self-sufficiency of a town, but can improve the lives of all who live there.

Marohn suggests that while big governing organisations tend towards specialists as decision-makers, localized government is most effective when generalists are in charge. People who can make connections with others, seek out the experts on any given subject, and bring together combinations of skills will be the most successful leaders.

“The large systems that we have created – really a byproduct of the things that happened in the Depression and World War II – allowed us to accomplish a lot of things in a very short period of time, but come with their own fragility, their own kind of disconnectedness.”

“You can see in things like the Brexit vote, you can see in things like the conversation we’re having in our election cycle… you can see this disconnect between the large systems we have to govern ourselves, the large systems we have to run our economies, and the way we actually live our everyday lives.”

He has also advocated for shifting from the traditional property tax to a land value tax. He explains:

“The property tax system punishes investments that improve the value of property. The land tax system… punishes property that is left idle.”

Charles “Chuck” Marohn works as a licensed engineer in the State of Minnesota.  He is a member of the American Institute of Certified Planners and founder and president of Strong Towns, a national media organization that supports the development of resilient cities, towns, and neighborhoods. Marohn holds a Master’s degree in Urban and Regional Planning from the University of Minnesota and a Bachelor’s degree in Civil Engineering from the University of Minnesota’s Institute of Technology.  He is the author of Thoughts on Building Strong Towns. Volume I and A World Class Transportation System.

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Who Owns Geosynchronous Orbital Pathways?

Who owns outer space? Our most idealistic visions of the future require us to transcend our narrow personal or nationalistic interests, but increasingly, space seems likely to be divvied up among the powerful, as has so often happened with the Earth. Can space be managed to serve the common interest?

Managing a Commons

Space is generally thought of as a commons. A commons is a resource which is not under the exclusive control of anyone. This makes it an interesting and challenging economic coordination problem. The US Department of Defense classifies outer space as one of the “global commons” alongside the oceans, atmosphere, and cyberspace.

Former Under Secretary of Defense for Policy, Michele Flournoy, and Shawn Brimley of the Center for a New American Security write:

“…as rising nations and non-state actors become more powerful, the United States will need to pay more attention to emerging risks associated with the global commons, those areas of the world beyond the control of any one state—sea, space, air, and cyberspace—that constitute the fabric or connective tissue of the international system.”

Even during the heated Space Race between the United States and the USSR, there were lofty ideals about how to treat the cosmos. The Outer Space Treaty, ratified by all major world powers at the time, limits the use of orbital pathways and celestial bodies to peaceful purposes. Weapons of mass destruction are specifically banned. More interestingly, it also prohibits any signatory nation from claiming ownership of celestial resources.

The resources of space were not to be seen as just a bunch of loot waiting to be plundered. According to the Treaty, managing outer space was viewed as an international responsibility of utmost importance, for the benefit of all.

Photo: NASA on The Commons Van Allen Probes via photopin (license)
Photo: NASA on The Commons Van Allen Probes via photopin (license)

New Space Race

But a new space race is on. This time, a private space race. Billionaires are funding serious commercial spaceflight companies such as SpaceX, Blue Origin, Planetary Resources, Virgin Galactic, Stratolaunch Systems, and Bigelow Aerospace, and other lesser-known private companies and defense contractors are also competing. Additionally, competitions like the Google Lunar X Prize are under way. All of these enterprises share the goal of making space more accessible.

Elon Musk once raised the possibility of launching as many as four thousand micro-satellites into low Earth orbit for the purpose of providing worldwide high-speed internet access. Mark Zuckerberg had planned a similar service  via Internet.org. Both men have quietly put these plans on the back-burner; however, the inexorable trend of cheaper spaceflight is continuing to increase satellite congestion surrounding Earth.

The progress that SpaceX has made with reusable launch vehicles does help reduce the quantity of space junk per-launch, but it also makes spaceflight cheaper thus encouraging more congestion. Junk continues to accumulate much faster than it is burned up.

Kessler Syndrome

Space junk is any small debris left in orbit by spacecraft. The problem is that it can impact orbiting spacecraft at speeds up to twenty times faster than a bullet. Worse yet, in the event of a collision, more debris is created.

In the worst-case scenario, this process of collisions creating more debris starts a chain reaction called Kessler Syndrome. If there are enough orbiting satellites, this chain reaction can eventually consume all of them, and leave behind a speeding cloud of bullets encircling the Earth and keeping humanity grounded for a century or more.

In political economy, we would call this an example of tragedy of the commons.

To reduce this threat, a number of mechanisms have been proposed. Decommissioning large obsolete satellites can significantly reduce the likelihood. However, doing so is expensive and of little direct benefit to the individual spacefaring organization. Nonetheless, the European Space Agency has already planned missions as part of its Clean Space initiative.

Another theoretical mitigation technique includes the development of lasers to shoot down space junk, or to redirect it whenever it threatens important orbital spacecraft.

Photo: John Flannery Space Junk(license)
Photo: John Flannery Space Junk(license)

Financing cleanup efforts

Who ought to be paying for these cleanup efforts? If billionaires intend to start launching thousands of satellites, is it simply up to the public to clean up the mess?

The ‘polluter pays principle’ is standard in environmental law. In addition to aligning with our moral intuitions for responsibility, taxes on pollution have the benefit of discouraging the damaging activities that create pollution in the first place.

In keeping with this thought, it would be sensible to propose a Pigouvian tax on anyone who creates space junk, in proportion to the amount of junk that they create. Since this junk can be accurately detected, it would be straightforward to measure and determine the tax.

Amending the Outer Space Treaty and establishing a body to implement the polluter pays principle would be a common sense method by which we could work to eliminate the threat of space junk.

There’s another possible source of revenue if we consider that the orbital paths themselves are a finite resource. Satellite collisions have happened in the past and will continue going forward. Indeed, every satellite launched brings with it a small risk of collision. And the more satellites we have, the greater the likelihood of collision and, eventually, of triggering Kessler Syndrome.

Certain orbital pathways are more desirable than others. Geo-stationary orbits might be more desirable than low Earth orbit; a sun-synchronous orbit may be more desirable than an alternative orbit. If billionaires start launching thousands of satellites, it is entirely possible that we could eventually be forced to allocate these orbital paths by auction, in order to fund general collision insurance.

Such a model would certainly be more fair and predictable than our current process, which is for companies to patent orbital pathways, and sue anyone who infringes on it (regardless of collision risk). Granted, the FAA’s Office of Commercial Space Transportation also has a permitting process in the United States. But permitting practices vary by nation, and there’s little or no international coordination for revenue-sharing, insurance, or cleanup.

Motherboard interviewed Andrew Rush, a patent attorney and entrepreneur with expertise in space law, who said “As more and more companies start commercial activities using satellites, and using new and innovative ways to do so, we should see an uptick in patent activity.”

“We may also see the attendant uptick in patent litigation around some of those activities,” he added. “I personally hope that’s not the direction that we go. I hope there’s a lot more licensing and a lot more cooperative ownership and stewardship of patents, rather than just suing each other. “

An exemplary model of proper resource management can be found in the Norwegian Oil Fund. Upon discovery of its oil reserves, Norway instituted the collection of economic rent based on the revenue generated from oil extraction, plus oil exploration licensing fees. The resulting revenue was then kept in a trust fund and used to invest both within Norway and internationally. As of June 2015, the fund has accrued $873 billion. Given its size and stake in companies worldwide, the fund has become an significant player in international affairs. As such, it pursues economic and social justice through its decisions concerning its holdings, divesting from companies that violate its ethical standards.

If our civilization is able to use market pricing to collect economic rent from the Earth’s geosynchronous orbits, we would enjoy similar success as Norway while preserving a critical resource. Such concepts are already proving successful here on Earth. London uses congestion pricing to reduce traffic in its city center, and uses that revenue to fund public transportation. Congestion in space is ultimately no different.

Let’s preserve our common inheritance of space for future generations, not at the expense of our current generation, but by achieving justice. We all deserve to share the benefits and the value of outer space.

 

Feature image: NASA on The Commons Satellites for Sale (license)

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Bidding Wars Create New Headaches for Vancouver Renters

Finding a new apartment in a competitive housing market can be exhausting: constantly scouring classified ads, racing from one showing to another, hoping that your credit history and persona can charm potential landlords. But just when you thought finding an apartment couldn’t be more difficult, prospective tenants are finding themselves in rental bidding wars, as landlords exploit competitive real estate markets to maximize revenues.

Vancouver, British Columbia has a housing market rivaling the aggressive competition of New York City and San Francisco. The vacancy rate decreased from 1.8% in 2014 to 0.8% today, and the average rent is $2,230. Neither metric shows any sign of improving as the population continues to grow, partially driven by Vancouver’s strong job market.

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Photo: justenoughfocus Lights of Coal Harbour via photopin (license)

It is not uncommon for prospective renters to conduct searches spanning months, which can cause substantial disruption in their lives. But some landlords are now taking steps that will exacerbate this problem – once you find an apartment in your price range, bidding wars between applicants will probably increase the list price.

As Devin Cox and his roommate hunted for an apartment in Vancouver, they noticed that approximately a quarter of all rental applications asked prospective renters to list the maximum amount above the asking price they would be willing to pay. According to Cox, multiple landlords notified them of higher offers and gave them the chance to increase their bid.

This practice is not illegal, and is even being highlighted in classified ads. A recent Craigslist posting for a studio apartment noted that monthly rent would be determined by an on-site auction. While this practice might be gaining steam in Vancouver for the first time, it has plagued US cities with limited housing stock for several years, particularly New York City and San Francisco.

Housing advocates cite bidding wars as a reason to implement stricter rental laws. At present, Vancouver officials are taking no action to curb this practice. Bidding wars have been blamed for worsening Vancouver’s housing crisis, although no studies have investigated the full extent of their effect.

Bidding wars are another way in which landlords are taking advantage of Vancouver’s economic success. Yet, they are just a symptom of deeper issues. The city’s infrastructure, people, and businesses are enticing large swathes of educated workers to relocate there, increasing the value of land in the metropolitan area. This increasing land value is a social product that should be reinvested in the community. Unfortunately, this value is being depleted through rising rents that are far outpacing wages.

If Vancouver will not take steps to eliminate bidding wars, it should at the very least take steps to increase residential space. Government officials should consider implementing a land value tax (LVT).

American political economist Henry George argued that taxing productive activity discourages production. Taxing buildings punishes those who build vertically, and results in a reduction in urban housing and worksites. To encourage more construction, he proposed abolishing the building taxes altogether, and shifting all taxes onto land. He argued that land is our common inheritance, and we can achieve justice by sharing the revenue from land.

Photo: Caelie_Frampton 6th ANNUAL WOMEN’S HOUSING MARCH via photopin (license)
Photo: Caelie_Frampton 6th ANNUAL WOMEN’S HOUSING MARCH via photopin (license)

There are many nuanced arguments in favor of this strategy. George argued that sufficiently-high land value taxation would actually encourage landowners to develop residential and commercial space, adding value for others, in order to pay the land value tax as well as provide themselves a respectable return. This additional housing inventory would ultimately reduce housing costs. But also the increase in construction and development would create a high demand for labor, thereby reducing unemployment and improving wages.

Given the extreme nature of Vancouver’s housing market, officials should move quickly to keep Vancouver a place where all people can afford to live and live well. The Vancouver mayor and council can be contacted online, over the phone, in person, or using a mobile app, details of which are listed at vancouver.caRead more on the problems of bidding wars and speculation.

 

Featured image: James Wheeler Granville Island Bridge via photopin (license)

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How Optimal Taxation Can Create a Better World

optimal taxation panel 2016

Earthsharing.org organized BIL: Oakland 2016 Recession Generation on July 9th in Oakland, California. The Optimal Taxation Panel participants were Yoram Bauman, Joshua Vincent, Fred Foldvary, Robin Hanson, and Kris Nelson. The panel moderator was Edward Miller (bios below).

The discussion revolved around the essential role that natural phenomena play in all economic activity and how to fairly treat these resources vis a vis taxation. Resources like land, minerals, access rights, the electromagnetic spectrum, domain names, and atmospheric carbon were discussed.

Optimal Taxation Panelists:

Yoram Bauman: PhD environmental economist and “stand-up economist.” Bauman is the founder of the revenue-neutral carbon tax proposal (I-732) that will be on the ballot in Washington State in November 2016. He has been working on environmental tax reform since his 1998 co-authorship of Tax Shift, which helped inspire the revenue-neutral carbon tax in British Columbia. Bauman also co-authored the Cartoon Introduction to Climate Change and the two-volume Cartoon Introduction to Economics. He lives in Seattle with his wife Laura and their two-year-old daughter.

Joshua Vincent: Executive Director at the Center for the Study of Economics since 1997. Vincent has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to restructure taxation to a land-based system, and has testified as an expert witness on the impact of land value taxation. Vincent is the editor and publisher of Incentive Taxation, a journal on land value taxation.

Fred Foldvary: Board member at Robert Schalkenbach Foundation (RSF), a non-profit organization established in 1925 to spread the ideas of the social and economic philosopher Henry George (1839-1897). Foldvary received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at the Latvian University of Agriculture, Virginia Tech, John F. Kennedy University, California State University East Bay, the University of California at Berkeley Extension, Santa Clara University, and currently teaches at San Jose State University. Foldvary is the author of The Soul of Liberty, Public Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research include public finance, governance, ethical philosophy, and land economics.

Robin Hanson: Associate Professor of Economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. Hanson is known as an expert on idea futures and markets, and he was involved in the creation of the Foresight Institute Foresight Exchange and DARPA FutureMAP project. He invented market scoring rules like LMSR (Logarithmic Market Scoring Rule) used by prediction markets such as Consensus Point (where Hanson is Chief Scientist), and has conducted research on signalling.

Kris Nelson: Principal at Phoenix Finance, which provides access to capital without collateral to small businesses and startups. Nelson also serves as Legislative Director of Common Ground OR-WA, a non-profit organization that promotes a more democratic treatment of land and natural resources. Previously, Nelson worked as a Principal at Genomics Consulting, where he helped launch a clean technology venture capital firm. He holds a Master’s degree in Business Administration from Willamette University and a Bachelor’s degree in Journalism from Evergreen State College.

Edward Miller: Co-organizer of the Recession Generation event. Miller is the Administrative Director of the Henry George School of Chicago, a non-profit educational organization which provides educational opportunities to the public on the topic of classical political economy. He serves as a board member for the Center for the Study of Economics. Previously, he has worked with the Institute for Ethics and Emerging Technologies.

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How Trump Pays No Taxes

So, Donald, is it Appreciation or Depreciation?

It is well known that tax systems around the world carve out all kinds of privileges for certain classes of people. Ordinary people, the largest class, pay a lot of tax. Then there are the privileged few who pay little or none. But how is it that so many have been out-foxed by so few to create these privileged classes of tax elites, or “tax smugglers” as Adam Smith use to call them? One need look no further than the first U.S. presidential debate on September 26th to find the answer. And it came from a source, Donald Trump, who does not appear to have a stellar reputation for insight into the complexities of modern life.

Secretary Clinton mused that the reason why Mr. Trump has not released his tax returns, unprecedented in modern presidential elections, was perhaps because he has not paid any taxes. Mr. Trump just about confirmed the allegation when he replied that he was smart not to pay taxes. Apart from the politically treacherous terrain of implying that if you do pay taxes you are stupid, or just not smart enough, it was an uncharacteristically insightful comment from the Republican nominee, even if he was not conscious of how insightful it was. It was about as close as Americans are probably going to get in this election cycle to a discussion about one of the most important things in their lives.

Now in the realm of tax professionals, or “tax techies” as the Nobel prize winner in economics William Vickrey liked to call them, no one was surprised by Trump’s comment. In fact tax lawyers and accountants will tell you that if you are in the real estate business and you paid income tax it is very likely you would have grounds to sue your tax lawyer or accountant for malpractice and gross negligence. There are all kinds of little known rules for those in finance, insurance, and real estate, the so called FIRE sector, which give them exclusive access to the elite tax clubs of the world.

Mr. Trump is probably a card carrying member of this club. If he is not, then I would not want to be his tax attorney. David Cay Johnston laid out the topsy turvy realm of real estate tax avoidance quite nicely on the PBS NewsHour on September 29th. Here briefly is how it works. If you are a real estate mogul like Mr. Trump you can depreciate lots and lots of buildings. This makes perfectly good economic sense because buildings, being created by humans, have a certain life span and need to be replaced. They have an economic life. If you devote fifteen hours or more a week to the “management” of these buildings or assets, then you get to deduct the depreciation of these buildings against all your other income. Mr. Trump’s income from selling ties made in China, or vodka, or fancy real estate courses can effectively be reduced to zero by means of the deduction of the depreciation of his real estate portfolio.

There are, of course, always wrinkles or flies in the ointment in the above scenario. Did he actually devote fifteen hours a week to the management of his real estate portfolio? Shifting through these regulations and their applicability to Mr. Trump is undoubtedly what animates the IRS auditors. It is hard to imagine Mr. Trump assiduously engaging in fifteen hours a week of management duties during a presidential campaign. But who knows? Maybe it can be done via Twitter. The tax attorneys are well paid for their imaginations.

Now it is unlikely the case that Mr. Trump thinks he is smart because he has read and memorized the Internal Revenue Code. Such a feat cannot be presumed of any law abiding citizen. Furthermore, surely he cannot think he is smart just because he has hired some very able tax professionals? There must be a something else afoot for the wily real estate mogul.

trump-tower
photo credit: – Adam Reeder – Chicago, IL via photopin (license)

Now we know that Mr. Trump has a high opinion of his net worth. He puts a high value on his name and on his buildings. Real estate crumbles and falls apart as every homeowner knows. Mr. Trump’s buildings are no different. Nonetheless, they also keep getting better, more valuable. How can he have it both ways? Well, the realm of tax law and that of economic reality has created a two-world metaphysic and Mr. Trump is its philosopher-in-chief . The tax man lets him depreciate the buildings over and over again while society at large rewards him with tremendous, yes very tremendous, appreciation of what lies underneath the buildings, i.e. the land and the unique location of those lands, be they in Manhattan, or well situated golf courses, or even money losing casinos.

Wily two-world philosophers know how to have it both ways. They depreciate and they appreciate. It is not an easy dance. If you are good at it, like Mr. Trump, you get everything and society gets nothing. The tax subsidies of Americans allow Mr. Trump to defer indefinitely payments to the public treasury. The money he saves can be invested in whatever he wishes, even presidential campaigns. The tax system is rigged and everyone knows it.

The obvious question for Mr. Trump at the next presidential debate, hopefully from a tax abiding person in the town hall, is how he might “unrig” the tax system, or the “surrealistic pagoda of pestilent greed” aptly labeled by Ferdinand Lundberg in The Rich and the Super-Rich. A really smart two-world philosopher could suggest that what is underneath the buildings be taxed. And why is this smart? It would relieve Mr. Trump of his fifteen hours a week of portfolio management. It would relieve the tax man of endless audits. It would relieve ordinary Americans of their current obligation to subsidize the very wealthy. And it just might lighten the debt loads of all levels of government. Everyone, just about, is a winner.

 

Francis K. Peddle, J.D., Ph.D.
Dominican University College
Ottawa, Canada

Featured Image: photo credit: Gage Skidmore Donald Trump via photopin (license)

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EarthSharing.org on Stanford Radio KZSU 90.1 FM Promoting the Recession Generation Event

WKZSU 90.1 FM Stanford University Radio Interviews EarthSharing.org

 

July 5th, 2016, Edward Miller and Jacob Shwartz-Lucas were invited onto Stanford University Radio to discuss an event they would organize in Oakland a few days later. The event was titled BIL Oakland 2016: The Recession Generation.

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The discussion revolved around the event’s aim of helping young adults to navigate the challenges of living in our harsh economic climate and rapid technological disruption.

Jacob and Edward discussed their motivations for putting on the conference. This included explaining their backgrounds, and what changes they want to see in the world.

photo credit: Jane Says via photopin (license)
photo credit: Jane Says via photopin (license)
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Chinese Investment in US Real Estate Tops $110bn

The lessons of the 2008 financial crisis are quickly being forgotten. That market collapse was precipitated by an extraordinary rise of US land values, which was driven by the emergence of subprime lending on a mass scale.

Prices of residential and commercial real estate are once again on the rise. A major driver of this astounding rebound has been Chinese real estate investment. Chinese investors, seeking promising investments and a way to move their money out of the slowing Chinese economy, have poured $110 billion dollars into US real estate in the past five years. By contrast, the Chinese real estate market, which is putting a drag on the Chinese economy, has been called by many the largest land bubble in history. Chinese investments in the US market are inflating housing prices across the country and placing home ownership further out of reach of many Americans.

Over the past several years, Chinese investment in commercial properties has captured headlines. For example, in 2015, the Anbang Insurance Group purchased the Waldorf Astoria Hotel for $2bn and attempted to purchase Starwood Hotels for $14bn. However, the vast majority of Chinese speculative investment has been in the residential market, to the tune of over $93bn. Cities with the most rapidly rising housing costs–San Francisco, New York, Los Angeles, and Seattle–are popular markets with Chinese buyers. But as housing stock across the country continues to gain value, buyers are now turning their speculative intents to Chicago, Miami, and regions of middle America.

Chinese buyers are eager to speculate in the US real estate market. Not only because they see a lucrative investment opportunity, but because of concerns about the slowing Chinese economy. As the economy continues to slow and the value of the Yuan falls, citizens are eager to move wealth abroad and into dollar-backed assets, particularly in the form of land speculation. Despite efforts by the Chinese government to encourage domestic investments, speculation in US real estate by Chinese nationals is expected to exceed $200bn over the next 5 years.

photo credit: IMG_0953 via photopin (license)
photo credit: IMG_0953 via photopin (license)

When people speak of rising real estate prices, they certainly aren’t talking about bricks, they are talking about land. As a consequence of all this land speculation, Americans are finding it harder to obtain affordable housing and commercial space, and not only because of rising prices. Close to 70% of Chinese buyers pay cash, which is more appealing to sellers because deals can close much faster. This puts US residential buyers who require a mortgage at a disadvantage. Bidding wars with deep-pocketed foreign speculators also has the effect of pressuring US buyers with more limited liquid assets to sign off on larger mortgages than they can financially handle.

Prospective home buyers are not the only ones feeling the crunch. As homeownership becomes more unaffordable, the number of people in the rental market increases, driving up rents across the country. In 2016, rent increases are expected to outpace wage increases by about one percentage point. Faster than the general rate of inflation.

The periodic bubbles in real estate markets are a symptom of this rush to pocket the rising value of land, whether by foreigners or citizens. So far, the United States is not taking steps to curb either domestic or foreign speculation in real estate. Instead, Congress is going in the opposite direction by encouraging foreign “investment” in US property.

However, other countries are taking a stand. Hong Kong and Singapore have instituted a 15% tax on properties purchased by foreign buyers, a move that has slowed the rise in housing costs. Citing decreasing affordability of homes, Australia has instituted a similar tax. The Australian government also used legal means to intercede in the attempt by Chinese investment group Dakang Holdings to purchase the Kidman Farm empire, which controls 1.3% of the Australian landmass.

photo credit: Lavender Valley 2407 via photopin (license)
photo credit: Lavender Valley 2407 via photopin (license)

An alternative to such measures, which numerous eminent economists recommend, is a tax on land values. Land value taxation (LVT) is a twist on conventional property taxation, whereby improvements to the land are not taxed, but the land itself is taxed. Proponents argue that we ought to shift as much taxes as possible away from productive activity and onto land values. While other strategies would serve to limit foreign land purchases, taxing land values would actually halt idle landholding in general by making the speculative ownership of raw or underdeveloped real estate unprofitable.

When markets are operating correctly, profits are simply a return for productive activity, not a windfall that is achieved by excluding others as with the landed gentry in the feudal era. With LVT in place, Chinese or other foreign investors who wanted to make money by purchasing land would have to actually develop that land. They would need to attract residential or commercial tenants by providing desirable amenities and reasonable rents, and shouldering the risks involved in any sort of productive activity.

This would result in a growth of construction activity and an increase in US housing supply. Increased construction activity and decreased cost for commercial and residential real estate would stimulate the rest of the US economy, simultaneously decreasing unemployment and raising wages.  In effect, taxation of land values would convert the current Chinese desire for US land into a sustainable means of growth for the US economy.

Featured image photo credit: Light River via photopin (license)

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