Transcript Paper 18-PPS

Taxing Land Rents,
Now Demonstrable and Feasible,
is the
Perfect Revenue
Source of Government Finance
H. William Batt, Ph.D., Board of Directors
Robert Schalkenbach Foundation, New York, and
International Union for Land Value Taxation, London
For Presentation at the 11th Global Conference
On Environmental Taxation
3-5 November, 2010, Bangkok, Thailand
Thailand Property Tax
Proposal
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0.5% commercial land and buildings
0.1% residential land and buildings
0.05 on agricultural land
0.5% undeveloped land, then 1.0%, and
then finally 2.0% in yearly steps
30 million parcels to assess nationwide
Land Value Taxation A Better Option:
All Taxes Come From Land Rent Anyway
• Taxes on Capital and Labor are Shifted to the Value of the Land
• This Means: Income Tax, Sales Tax, Business Tax, Building Tax
My City of Albany, New York
The Flow of Ground Rent
My City of Albany, New York
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Taxing Improvements Violates
Principles of Sound Tax Theory
• Neutrality, because it influences and alters decisions;
• Efficiency: reduces market performance and economies
by generating "deadweight loss";
• Equity: those in similar circumstances don't bear
comparable obligations; those in different circumstances
are not treated in a uniformly commensurate way;
• Administrability, management is skewed by external
forces, and maintaining adequate and reliable records is
costly;
• Simplicity, leading to misunderstanding, opaque
application, and consequent loss of legitimacy; and
• Stability, requiring continually jiggering and modification
to provide adequate revenue.
Principles of Sound Tax Theory
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Neutrality – No Market Distortion
Efficiency – No Deadweight Loss
Equity – Both Horizontal and Vertical
Administrability – Easily Managed
Stability – Reliable over Tax Periods
Simplicity – Easily Understood by All
Certainty – Unavoidable and Assured
Taxing Land Value is Ideal
• Comports with all the principles of sound tax
theory: neutrality, efficiency, equity,
administrability, simplicity, stability;
• Returns to the community that which it
created, and therefore has a moral basis;
• Remedies many macro-economic afflictions;
• Functions as a user fee as well as a tax.
Environmentally Sound rather
than Sprawl Development
Von Thunen Land Rent Gradient
von Thunen’s Land-Rent Curve
10
Salt Lake City Land Value Map, 1969
Portland Oregon LandValueScape
High Quality
Land Value Map
St. Louis & Seattle Skylines
14
Singapore & Toronto Skylines
15
Ground Rents are Capitalized Travel Costs
Bangkok 1890 and 2004
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Bangkok History of Sprawl Development Since 1900
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Bangkok, 1932
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Classical Siam Rent Payments
• Corvée Labor — until 20th Century
• Proportion of Yield — until 20th Century
• Payment in Money —in lieu of Corvée
Or Proportion of Yield
• Replaced by Fee Simple Ownership w Rent
Major Changes in Thai System of Property Rights in Land: 1800-1982
Explaining Home Value Change
Property Owners and Renters Now Pay Twice
Land Value Taxation Proportions on Vacant
and Underused Parcels #1
Land Value Taxation Proportions on Vacant
and Underused Parcels #2
Land Prices Compared with Other Housing Costs
Japan’s Land Bubble: 1980 - 2004
Adam Smith would Tax Land Rents
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“Both ground-rents and the ordinary
rent of land are a species of
revenue which the owner, in many
cases, enjoys without any care or
attention of his own. Though a part
of this revenue should be taken
from him in order to defray the
expenses of the state, no
discouragement will thereby be
given to any sort of industry.…”
“Ground-rents and the ordinary rent
of land are . . . the species of
revenue which can best bear to
have a peculiar tax imposed on
them."
Adam Smith, 1776
Economic Rent as % of GDP
• “The 'bottom line' reinforces the overall
conclusion . . . that land-based tax revenues are
indeed sufficient to allow total abolition of
company and personal income tax. Further, to
the extent that some taxes, such as rates, land
tax, resource rent taxes and even part of income
tax on land rents are already capitalized in lower
market values for privately held land, the figures
would tend to understate the capacity of land
income to replace existing taxes.”
– Terry Dwyer, "The Taxable Capacity of Australian Land and Resources,"
April 1, 2003, p 40.
Rent in US GDP in Textbooks
”Rent includes the income earned by households for the
use of their real property holdings such as land and
buildings of all kinds. It also includes the imputed rent of
owner-occupied dwellings, as noted previously.”
Roger N. Waud, Economics.
Rental income is $7.9 billion of a total GNP of $5,234
billion, or 1.5 percent.
Baumol and Blinder.
•Rental Income was 4.7 billion, or 0.079 percent of GDP.
Table 22.3, p. 559. Case and Fair.
Rent is 1 percent of U.S. economy in 2004.
Krugman and Wells.
Current Distribution
Tax
31.0
%
Rent
31.0
%
Net incomes (L&C)
38.0%
If we captured land values
Rent
31.0
%
Net incomes (L&C)
69.0%
You Can’t Get Something For Nothing!
• Milton Friedman was the
embodiment of NeoClassical Economics!
• If you don’t pay, I do –
• It’s a Zero-Sum System!
In a Rentier Economy, The
Landlords Get the Free Lunch!
“Landlords grow richer in their
sleep without working,
risking or economizing. The
increase in the value of
land, arising as it does from
the efforts of an entire
community, should belong
to the community and not to
the individual who might
hold title.”
John Stuart Mill
Dividing Fruits of Labor -- 1
• "Left-wing" proposals
call for society to
achieve equity by
redistributing most of
the wealth. No
distinction is made
between the sources of
income (land, labor or
capital), and individuals
control only a small
portion of the wealth. In
most cases this entails
a large measure of
social control, and a
"planned economy."
Dividing the Fruits of Labor -- 2
• "Right-wing" proposals
hold that efficiency
requires more wealth to
remain in private hands
(also making no distinction
between rent, wages and
interest), and that society,
or government, should only
get the minimum it needs
for necessary services,
e.g., the role of "traffic cop."
This implies leaving the
running of the economy to
private interests.
Dividing the Fruits of Labor -- 3
• "Middle-of-the-road"
proposals seek a "balanced
system" in the distribution of
wealth and power between
individuals and society - but
make insufficient distinctions
between earned and
unearned incomes, and do
not carefully define the
proper spheres of society
and the individual. The
result is a hodgepodge in
which efficiency and equity
always appear to be at
odds.
Dividing the Fruits of Labor -- 4
The Georgist proposal makes a
distinction between the unearned
income of land (rent) and the earned
incomes of labor and capital (wages
and interest). Rent to society, wages
and interest to the individuals who
earned them. The proper spheres of
society and the individual are
clarified.
The Georgist proposal achieves the
goal of "left-wingers" for security and
social action, but without restrictions
on liberty. It achieves the goal of
"right-wingers" to attain freedom, but
without privilege and monopoly. And
it achieves a balanced system
sought by "middle-of-the-roaders,"
but in a just rather than arbitrary
way.
Rent-Seeking Behavior
Land has an Inelastic Supply 1
• All charges on land
can total only to the
market nexus price.
Total charges include
both pecuniary
charges and other
obligations: legal
ordinances, service
fees, mortgage
interest, taxes, and sale
price.
Controlling
Market Price
Total Burden of Ownership is
Market Price Plus Tax
Price per
unit
S
Tax burden
Total Market Cost
D’
D
Quantity
Illustration of Land Value Map
Based on Arms Length Sales Data