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RE: [LandCafe] So what would the effect of this be...?

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  • Harry Pollard
    Gentlemen, Finally got around to some of the more interesting discussions. Excuse the delay but this seems to be a very pertinent subject. First I am dealing
    Message 1 of 31 , Jan 31, 2008

      Gentlemen,

       

      Finally got around to some of the more interesting discussions. Excuse the delay but this seems to be a very pertinent subject.

       

      First I am dealing only with urban location Rents which are high and more likely to produce high revenues than – for example – fertility. Excuse my repetition of the next few paragraphs which lead me into the ‘all taxes are paid at the expense of Rent’ discussion. “At the expense of” is George Collin’s description – rather better than the way I introduced it as “all taxes come out of Rent”.

       

      As you know, I restrict my meaning of the term ‘Rent’ only to the actual advantage provided to a location by the presence and access of the community.

       

      Yet, how do we measure that ‘advantage’?

       

      Conveniently, we use ‘market’ values to measure Rent.

       

      However, the free market is controlled by the price mechanism, which process requires easy production and movement to market to produce a ‘market price’.

       

      When there is no restriction on production and movement, the market price mechanism is unchallenged as the best method to find a price and react promptly to changes in circumstance.

       

      Yet, there is a complete restriction on the production of land and it cannot be moved to a location where demand is raising the Rent.

       

      Labor and Capital can increase and move in response to rising prices, and does. They are under price mechanism control. (A caveat – the source of Capital is likely to be Rent. This leads to many borrowers seeking loans from too few sources – a situation that perhaps raises interest above what should be normal.)

       

      I call the uncontrolled rising cost of land ‘rack-rent’. Buried within rack-rent is, of course, the “value provided to a location by the presence and access” of the surrounding community. The rest of rack-rent comes from monopoly characteristic of land.

       

      Georgists have simply defined Rent as the market value of a location. One may define concepts any way one wishes, but there seems to be an error in thinking when one compares directly a value uncontrolled by the price mechanism with values controlled by the market price mechanism.

       

      Be that as it may, Georgists since P&P have talked of Rent swallowing up production. “All consuming Rent” was the catchphrase that summed up the Georgist attitude. All increases in productivity caused by new technology, or by invention and innovation, were swallowed up in rising Rents. The Wages of Labor were continually being forced down to subsistence levels by rising Rents.

       

      Let me call the price mechanism controlled market a “free market” and a monopoly market simply the market.

       

      If land was a free market, the location value caused by the presence and access of the community would be (say) - $100 a week. Let’s say that’s the amount charged by the landholder.

       

      Labor earns his full wage – he pays $100 a week, but he gets $100 a week in location value (provided by the community).

       

      Also, the full return from using Capital adds mightily to his wages. At relatively small cost his production is multiplied.

       

      He would lose any revenue that might be collected by the community, which would mean he would have to pay for infrastructure and suchlike – but his full production would be his to spend on roads, or SUVs – perhaps both.

       

      However, this is not reality. In the land market he would not pay $100 a week for a community created value of $100 a week. Instead he might have to pay $300, $500, $700 each week for a location with a community created value of $100 a week.

       

      In a free market, he would simply say “A pox on you!” and hire a substitute. Unfortunately, there is no substitute for land. You pay the demand or, in the worst circumstances, you die.

        

      The extra amount above Rent (the community created value) comes from only one source – wages. And it should actually be called “all-devouring rack-rent”.

       

      Any taxes levied on rack-rent appear to be Keynesian – keep the privilege, but tax some of the ill-gotten gains.

       

      And we should understand that when we tax rack-rent, we are actually taking wages, for rack-rent is taken from wages – where else? Surely, not a policy that Georgists are supposed to support.

       

      I would suggest that when we apply two-rate taxation, we are taking some of that rack-rent. It is unlikely that we are touching the Rent that is buried there.

       

      A sole owner of land – vacant or improved – can pay it without much of a problem, perhaps with a tax-payer.

       

      But, what if he is receiving $700 for that $100 a week land, but he has to pay a $500 mortgage? If two-rate levies $100 on the land, possession becomes fairly unattractive. He is still getting $100 but people like two-rate and will probably increase the land take. Better to get rid of his land.

       

      This means that land that would otherwise be frozen for decades comes to market and the economy improves, raising land values. This is a consequence that Georgists use to “disprove” the notion that collecting Rent reduces the price of land. We have evidence they claim.  

       

      All it shows is that we aren’t collecting enough to create the desirable economic consequence – just some rack-rent.

       

      So, what if we begin collecting more and more rack-rent?

       

      Somewhere along the line, the large professional investors would begin quietly to get out of the land market. Land prices would sag and others would join the divestment. Land prices would drop still further and there would be a general flight from land ameliorated perhaps by increasing activity from producers picking up and using cheaper land.

       

      Last to unload would be the collectors. Georgists should take a closer look at collectors and the collectible mind.

       

      The collector expects his collectible to become more and more valuable. He usually refuses to confront a drop in value. A collector will hang on to his less valuable collectible – convinced that the fall is temporary and values will return.

       

      This is noticeable when a home is bought for $10,000 and bubbles up to (say) $400,000. Then, the bubble is pricked and it drops to $300,000. He won’t say “I’ve made $290,000!”

       

      Rather, he will bemoan the fact that he has lost $100,000. In his mind the home is still worth $400,000.

       

      So, lots of land collectors who have been bathing in unearned wealth will lose their shirts in the wash. (My metaphors enjoy a good mixing.)

       

      So, let’s lay any tax on the economy and see what happens. Let’s make it a 10% sales, purchase, or ‘value added’, tax.

       

      Labor at the bottom of the wage pyramid can’t pay it. They are already at subsistence. The only way to keep them alive and producing is to take less in rack-rent. Of course, with luck, the State will give them welfare and that quickly will be swallowed by increased rack-rents.

       

      How about those not at the bottom of the wage pyramid? Surely, they can contribute more taxes from their higher stipends?

       

      They are probably getting (say) ten times as much as those at the bottom because they can produce ten times as much wealth. If the production of a worker at the bottom is worth a dollar – his wages, the more able producer will produce $10 – his wages.

       

      If we tax the higher producer (say) $5 on his production, will he pay it from the $10 – or ask $15 for his production?

       

      If an employer needs a $10 producer and all of them are now asking for $15, will he refuse to pay it or pay it and raise his prices?

       

      A simple rule of taxation is that a tax can be passed on unless it’s a differential tax.

       

      Two apartments buildings a mile apart are paying different land-value taxes – say one pays twice as much as another. The higher taxed building cannot pass the higher LVT on to its tenants.

       

      If apartments are all taxed the same – say $20 an apartment – this can be passed on to the tenants.   

       

      If all able ($10 dollar) producers are taxed the same this increased cost will be passed on. If it cannot be passed on, it will be paid at the expense of rack-rent – to use the Collin’s terminology.

       

      However, something for researchers to dig into (maybe they already have) is whether wages rise as taxes rise.

       

      However, we are in a bind. If we tax rack-rent significantly it could lead to a land price crash (actually, rather a good thing).

       

      Although we often think in terms of a gradual increase of land-value taxes to cushion any adverse consequences, I think there may well be a tipping point (the latest bit of jargon). We increase taxation until, suddenly, before we know it we go over the edge and land abandonment becomes widespread.

       

      This means that the best time to make our move would be after the present bubble bursts so we can’t be blamed for the crash. Unfortunately, so much legislation will be passed at that time it becomes difficult to know what will happen (one shivers at the Bush strategy, and he is somewhat restrained).

       

      Who knows what other less careful politicians and economists will do?

       

      Harry

       

      ******************************

      Harry Pollard

      Henry George School of Los Angeles

      Box 655

      Tujunga  CA  91042

      (818) 352-4141

      ******************************

       

      From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On Behalf Of Dan Sullivan
      Sent: Monday, January 14, 2008 9:04 AM
      To: fred@...
      Subject: RE: [LandCafe] So what would the effect of this be...?

       

      On 14 Jan 2008 at 8:38, Fred Foldvary wrote:

      > What I am arguing against is the proposition that ALL
      > taxes are at the expense of rent.

      Then you need to be clear about what you mean. You jumped in by
      arguing against the assertion that all taxes depress rent, and then seem
      to have switched the question by arguing that some taxes depress
      wages. In as much as depressing wages and depressing rent are not
      mutually exclusive, you need to be clear as to whether you are saying
      that there are other victims of bad taxation besides landlords, with
      which all Georgists would agree, or whether there are actually taxes
      that would not depress rents, or would not depress them by the
      amount collected, with which some of us disagree.

      Thus, the fact that some taxes depress wages is irrelevant unless you
      can show that they do not also depress rents. It's not a zero-sum game.

      -ds

    • Harry Pollard
      Gentlemen, Finally got around to some of the more interesting discussions. Excuse the delay but this seems to be a very pertinent subject. First I am dealing
      Message 31 of 31 , Jan 31, 2008

        Gentlemen,

         

        Finally got around to some of the more interesting discussions. Excuse the delay but this seems to be a very pertinent subject.

         

        First I am dealing only with urban location Rents which are high and more likely to produce high revenues than – for example – fertility. Excuse my repetition of the next few paragraphs which lead me into the ‘all taxes are paid at the expense of Rent’ discussion. “At the expense of” is George Collin’s description – rather better than the way I introduced it as “all taxes come out of Rent”.

         

        As you know, I restrict my meaning of the term ‘Rent’ only to the actual advantage provided to a location by the presence and access of the community.

         

        Yet, how do we measure that ‘advantage’?

         

        Conveniently, we use ‘market’ values to measure Rent.

         

        However, the free market is controlled by the price mechanism, which process requires easy production and movement to market to produce a ‘market price’.

         

        When there is no restriction on production and movement, the market price mechanism is unchallenged as the best method to find a price and react promptly to changes in circumstance.

         

        Yet, there is a complete restriction on the production of land and it cannot be moved to a location where demand is raising the Rent.

         

        Labor and Capital can increase and move in response to rising prices, and does. They are under price mechanism control. (A caveat – the source of Capital is likely to be Rent. This leads to many borrowers seeking loans from too few sources – a situation that perhaps raises interest above what should be normal.)

         

        I call the uncontrolled rising cost of land ‘rack-rent’. Buried within rack-rent is, of course, the “value provided to a location by the presence and access” of the surrounding community. The rest of rack-rent comes from monopoly characteristic of land.

         

        Georgists have simply defined Rent as the market value of a location. One may define concepts any way one wishes, but there seems to be an error in thinking when one compares directly a value uncontrolled by the price mechanism with values controlled by the market price mechanism.

         

        Be that as it may, Georgists since P&P have talked of Rent swallowing up production. “All consuming Rent” was the catchphrase that summed up the Georgist attitude. All increases in productivity caused by new technology, or by invention and innovation, were swallowed up in rising Rents. The Wages of Labor were continually being forced down to subsistence levels by rising Rents.

         

        Let me call the price mechanism controlled market a “free market” and a monopoly market simply the market.

         

        If land was a free market, the location value caused by the presence and access of the community would be (say) - $100 a week. Let’s say that’s the amount charged by the landholder.

         

        Labor earns his full wage – he pays $100 a week, but he gets $100 a week in location value (provided by the community).

         

        Also, the full return from using Capital adds mightily to his wages. At relatively small cost his production is multiplied.

         

        He would lose any revenue that might be collected by the community, which would mean he would have to pay for infrastructure and suchlike – but his full production would be his to spend on roads, or SUVs – perhaps both.

         

        However, this is not reality. In the land market he would not pay $100 a week for a community created value of $100 a week. Instead he might have to pay $300, $500, $700 each week for a location with a community created value of $100 a week.

         

        In a free market, he would simply say “A pox on you!” and hire a substitute. Unfortunately, there is no substitute for land. You pay the demand or, in the worst circumstances, you die.

          

        The extra amount above Rent (the community created value) comes from only one source – wages. And it should actually be called “all-devouring rack-rent”.

         

        Any taxes levied on rack-rent appear to be Keynesian – keep the privilege, but tax some of the ill-gotten gains.

         

        And we should understand that when we tax rack-rent, we are actually taking wages, for rack-rent is taken from wages – where else? Surely, not a policy that Georgists are supposed to support.

         

        I would suggest that when we apply two-rate taxation, we are taking some of that rack-rent. It is unlikely that we are touching the Rent that is buried there.

         

        A sole owner of land – vacant or improved – can pay it without much of a problem, perhaps with a tax-payer.

         

        But, what if he is receiving $700 for that $100 a week land, but he has to pay a $500 mortgage? If two-rate levies $100 on the land, possession becomes fairly unattractive. He is still getting $100 but people like two-rate and will probably increase the land take. Better to get rid of his land.

         

        This means that land that would otherwise be frozen for decades comes to market and the economy improves, raising land values. This is a consequence that Georgists use to “disprove” the notion that collecting Rent reduces the price of land. We have evidence they claim.  

         

        All it shows is that we aren’t collecting enough to create the desirable economic consequence – just some rack-rent.

         

        So, what if we begin collecting more and more rack-rent?

         

        Somewhere along the line, the large professional investors would begin quietly to get out of the land market. Land prices would sag and others would join the divestment. Land prices would drop still further and there would be a general flight from land ameliorated perhaps by increasing activity from producers picking up and using cheaper land.

         

        Last to unload would be the collectors. Georgists should take a closer look at collectors and the collectible mind.

         

        The collector expects his collectible to become more and more valuable. He usually refuses to confront a drop in value. A collector will hang on to his less valuable collectible – convinced that the fall is temporary and values will return.

         

        This is noticeable when a home is bought for $10,000 and bubbles up to (say) $400,000. Then, the bubble is pricked and it drops to $300,000. He won’t say “I’ve made $290,000!”

         

        Rather, he will bemoan the fact that he has lost $100,000. In his mind the home is still worth $400,000.

         

        So, lots of land collectors who have been bathing in unearned wealth will lose their shirts in the wash. (My metaphors enjoy a good mixing.)

         

        So, let’s lay any tax on the economy and see what happens. Let’s make it a 10% sales, purchase, or ‘value added’, tax.

         

        Labor at the bottom of the wage pyramid can’t pay it. They are already at subsistence. The only way to keep them alive and producing is to take less in rack-rent. Of course, with luck, the State will give them welfare and that quickly will be swallowed by increased rack-rents.

         

        How about those not at the bottom of the wage pyramid? Surely, they can contribute more taxes from their higher stipends?

         

        They are probably getting (say) ten times as much as those at the bottom because they can produce ten times as much wealth. If the production of a worker at the bottom is worth a dollar – his wages, the more able producer will produce $10 – his wages.

         

        If we tax the higher producer (say) $5 on his production, will he pay it from the $10 – or ask $15 for his production?

         

        If an employer needs a $10 producer and all of them are now asking for $15, will he refuse to pay it or pay it and raise his prices?

         

        A simple rule of taxation is that a tax can be passed on unless it’s a differential tax.

         

        Two apartments buildings a mile apart are paying different land-value taxes – say one pays twice as much as another. The higher taxed building cannot pass the higher LVT on to its tenants.

         

        If apartments are all taxed the same – say $20 an apartment – this can be passed on to the tenants.   

         

        If all able ($10 dollar) producers are taxed the same this increased cost will be passed on. If it cannot be passed on, it will be paid at the expense of rack-rent – to use the Collin’s terminology.

         

        However, something for researchers to dig into (maybe they already have) is whether wages rise as taxes rise.

         

        However, we are in a bind. If we tax rack-rent significantly it could lead to a land price crash (actually, rather a good thing).

         

        Although we often think in terms of a gradual increase of land-value taxes to cushion any adverse consequences, I think there may well be a tipping point (the latest bit of jargon). We increase taxation until, suddenly, before we know it we go over the edge and land abandonment becomes widespread.

         

        This means that the best time to make our move would be after the present bubble bursts so we can’t be blamed for the crash. Unfortunately, so much legislation will be passed at that time it becomes difficult to know what will happen (one shivers at the Bush strategy, and he is somewhat restrained).

         

        Who knows what other less careful politicians and economists will do?

         

        Harry

         

        ******************************

        Harry Pollard

        Henry George School of Los Angeles

        Box 655

        Tujunga  CA  91042

        (818) 352-4141

        ******************************

         

        From: LandCafe@yahoogroups.com [mailto:LandCafe@yahoogroups.com] On Behalf Of Dan Sullivan
        Sent: Monday, January 14, 2008 9:04 AM
        To: fred@...
        Subject: RE: [LandCafe] So what would the effect of this be...?

         

        On 14 Jan 2008 at 8:38, Fred Foldvary wrote:

        > What I am arguing against is the proposition that ALL
        > taxes are at the expense of rent.

        Then you need to be clear about what you mean. You jumped in by
        arguing against the assertion that all taxes depress rent, and then seem
        to have switched the question by arguing that some taxes depress
        wages. In as much as depressing wages and depressing rent are not
        mutually exclusive, you need to be clear as to whether you are saying
        that there are other victims of bad taxation besides landlords, with
        which all Georgists would agree, or whether there are actually taxes
        that would not depress rents, or would not depress them by the
        amount collected, with which some of us disagree.

        Thus, the fact that some taxes depress wages is irrelevant unless you
        can show that they do not also depress rents. It's not a zero-sum game.

        -ds

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