Capitol gains

February 27, 2012 § Leave a comment

IF WEALTH, AS opposed to income, is the true measure of economic well-being, it’s equally true that a prime location is both the quintessential signifier and repository of wealth — as well as a mechanism for getting yet more of it.

Ask the overpaid rapping bureaucrats, war contractors, lobbyists, lawyers and other privilege profiteers in the fashionable Washington suburbs of Maryland and Virginia — the enclaves of the Wall$hington “one percent”. Fabulous wealth has accrued to the real estate in the empire’s capital.

Although at its all-time  peak, the perennial Wall$hington real-estate bubble is not new– it was visible even in 1886: “The Federal government has acted the part of a munificent patron to Washington City. The consequence is that the value of lots has advanced,” Henry George wrote in Protection or Free Trade.

Not that we’re just going to Let’s explore the commection between the state, the privileged private sector The connection between the privilege of ownership of key locations, and the Wall$hington One Percent’s riches  goes further. Ask any urban hipster who’s watched formerly vibrant, artsy urban neighborhoods go to crap. I.e., watched the coffeehouses, music spots, dive bars or late-night diners on the busiest corners be replaced by Starbucks stores and bank branches. 

A superior location is a business advantage to banks, of course. But it’s more: locations are the literal stock in trade of finance. Mortgage lending is a core business in commercial banking. (Then there are all those mortgage-backed derivatives…) And the value of the mortgages that banks trade on consists, to a lesser or greater degree — sometimes, to a very great degree — of location value. 

Ancient arguments, as well as modern economic findings, put location and other features of land in a unique ethical category: no individual created the earth, or the socioeconomic advantage conferred by superior location within a community; why should any individual have a monopoly on any location? Why should such individuals have the privilege of preventing others enjoying a location, or collecting rent on them?

This question suggests a much-needed shift from the stale and eye-glazing debate over tweaks to federal income taxation, to a conversation about capturing and recirculating location and resource values  instead, as Henry George  eloquently argued.

Most U.S. land is under a local and State jurisdiction. Converting the local real-property tax (woefully misapplied in nearly every locality) into a Georgist land-only “single tax” is fairly simple.  It would apply to the value of any urban and rural land of value (i.e., any land that could get a price on the market), including land containing natural resources. Even though it’s commonly called a tax, such a charge is more accurately called a fee, since unlike taxes, it is determined by the market and it pays for known benefits. (If a location confers few or no benefits, such as public infrastructure, then it would have little or no market value, and thus, would pay little or nothing.)

If we’re also phasing out the inefficient-to-collect, counterproductive, and liberty-destroying taxes on income, goods, and trade, as well as lifting counterproductive regulations,  we’re also lifting an immense dead weight off the economy. That’s George’s “Single Tax and Free Enterprise” principle.

A land-value basis for revenue would be much more efficient, less arbitrary and less intrusive than the 17,000-page federal tax code (with its additional 54,000 pages of regulations) and the additional maze of State, county and city taxes. The ground-rent or “Single Tax” would be the least bad tax, since as economists acknowledge, it does not hinder productive enterprise in the least.

Plus, it would flow from the bottom up and would argubly shift the power from Washington to the local governments. Typically, the existing real property tax is governed by State constitutions and laws, but implemented by local governments. The Single Tax on land, similarly, would be imposed locally. It could be shared “upward” to State and federal levels, as was done previously in this nation’s history.

Federally managed resources would contribute their own rents and royalties. Finally, governments would charge other user fees for specific services. Taken together, these methods could replace the current array of destructive taxes that hinder useful activities and destroy jobs.

Also, unlike income, land cannot be hidden or taken offshore, nor does it shrink when taxed — unlike jobs, building construction, saving, exchange of goods and services, or motivation to work. The “worst” outcome of unburdening those good activities, and shifting the public revenue burden onto land value, is that economic activity would be hugely stimulated while landholders would be spurred to use their valuable asset more efficiently and productively — a win-win scenario for everybody. States and localities have significant power to begin to resurrect the economy, and to ensure just wealth distribution away from the sinkhole of Wall$hington.


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