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Author Topic: Economics According To George (Henry George, that is...)  (Read 30421 times)

RhythmStar

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Economics According To George (Henry George, that is...)
« on: August 16, 2003, 09:34:18 am »

I see folks arguing about free markets versus government, seemingly  trapped between the Scylla of Socialism and the Charybdis of Corporate Fascism.   Always, favored economists or philosophers are cited as providing the logic and inspiration behind all manner of solutions, aiming to maximize or minimize one side or the other.  However, no matter which side one takes, the other is able to rightly point out chinks in their opponents' armor.

Could it be that, despite logically valid points to go around for both views (depending on your assumptions), both sides are fundamentally wrong?

I think so.   And I think I have found a page that really sums up the difference between the economics of Henry George and those of his Left- and Right-wing alternatives.  Always curious, I would really like to see what the folks here think of this:

How Do We Divide the Fruits of Labor?

It's not long on text, but it says a lot. ;)

RS

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LeopardPM

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Re:Economics According To George (Henry George, that is...)
« Reply #1 on: August 16, 2003, 01:32:48 pm »

interesting link - thank you!
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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #2 on: August 16, 2003, 01:56:28 pm »

The definition of "Unearned income from land" could be debated for centuries, both sides finding chinks in the other's armor.

I had rent houses and can guarantee you that my profits weren't unearned, so much that I quit that "job".

I currently buy and sell land for a living. Much of what I make is "unearned" return on investment, some of it is "wages" for asset enhancement and asset management.

Georges scheme sounds like a redistribution scheme aimed at punishing people like me who have put their capital in one place instead of another. Sounds pretty arbitrary to me.
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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #3 on: August 16, 2003, 04:00:01 pm »

Norris,

The value of the improvements you make are yours to keep.  That includes rent for houses and any other material investments.   Georges proposal punishes no one and in fact abolishes all taxes on the fruits of labor.  

We are all used to looking at land + improvements = property.  In Georges proposal, land is land and improvements and their revenues are not taxable.

RS
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lloydbob1

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Re:Economics According To George (Henry George, that is...)
« Reply #4 on: August 16, 2003, 04:15:16 pm »

I heard a speech about George a long time ago. If I remember corectly and I might not, he said that property should not be owned as we define it, but, belongs to someone for their lifetime and then reverts back to society.
I didn't like this then and I don't now.  Property is defined as that which one disposes of, which means I can leave my property to my children or anyone I want after, or before, for that matter my death.
Again, I might remember it wrong.
Lloyd
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Matt Nellans

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Re:Economics According To George (Henry George, that is...)
« Reply #5 on: August 16, 2003, 04:35:12 pm »

I owe no debt to society at all, ever.

The rights of the individual supercede any communal interest, always.

Only in a handful of matters do individuals cede some control...defense, courts etc.
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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #6 on: August 16, 2003, 05:07:51 pm »

Rythmstar,
That doesn't clarify it much.
First of all, land without improvements doesn't generate much rent, mine generates none. That said, the other potential source of revenue for "society" whould be the profit made on the appreciation when I sell.
If the state siezed that profit  from landowners, the value of land would drop to a fraction of what it is today since nobody would want to hold it.
 This might be solved by a massive, one time compensation to landowners, which seems unrealistic. Also the potential revenue would be diminished considerably by the lack of buyers.

With the profit on appreciation going to the state, a distinction would have to be made regarding the exact value of the improvements, timber, crops etc. which whould make transactions expensive and necesitate a bureaucracy to document it.

Has George estimated how much revenue this would bring in and what percentage of current revenues that would amount to?  I think it would be way down in the single digits.  It would be mighty hard to sell such a transition, especially if current landholders are compensated for the loss of appreciation rights.

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Johnny Liberty

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Re:Economics According To George (Henry George, that is...)
« Reply #7 on: August 16, 2003, 05:31:24 pm »

My understanding is that the "landholder" is taxed yearly on the value of the land, not any capital improvements built on the land. The trade off on this single tax on raw land is the elimination of income taxes taken from wages or capital (stocks, bonds, businesses).

As to the revenue calculated to be generated from such a scheme in one of free states, ?
« Last Edit: August 16, 2003, 05:32:54 pm by Johnny Liberty »
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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #8 on: August 16, 2003, 06:10:27 pm »

BTW, here is another link that goes into more detail on the tax issue:

Taxes -- What Are They Good For?

George proposed a 5% royalty to the landholder in order to capitalize the price of land and bring market forces to bear therein.  Put another way, the tax on land rents would be 95%. Wouldn't that high a land tax impoverish the landowners?  Not at all!

Firstly, the Single Tax would only apply to the LAND rent, not the portion of the tenant's rent that applied to the improvements thereof.  Also, there would be no other taxes.  Let's run the numbers on a scenario to see how it all works.

Current Situation:

Land Value = $100
Improvements = $100
Tenant Rent = Land Value + Improvements = $200
Income+Other Taxes = 50%

Landholder Net Income ($200 rents less taxes) = $100

On the Tenant's side, they have to gross $400 to pay their 50% taxes and still have $200 for the rent.  How they eat is anyone's guess.

The Government has a gross revenue of $300 out of the deal!  

Does that seem equitable to anyone?

Now, let's use the George formula:

Land value = $100
Improvement value = $100
Tenant Rent = Land Value + Improvements = $200
Land Tax = 95%

Landholder net income (rents less taxes)  = $105, so they just got a raise in real income.  How is this punishment?

On the tenant's side, life is good, as they own no land, they pay no taxes!  They went from nothing to eat after making $400 and paying half to taxes and half to rent, to having $200 left over after rent.

The government's share in this is just the $95 from the land tax.  

We can see here that the original Georgist proposal increases real income for the landholder slightly, while providing a windfall for the tenant.  Government makes slightly less than the landholder.  So, Labor is rewarded greatly, while Landholders do better than today and the Government is restricted to 23.75% of the pie.  Labor's fruits are not even on the taxation table.

Is this more equitable, or not?  If not, then why?

RS



« Last Edit: August 16, 2003, 06:13:54 pm by RhythmStar »
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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #9 on: August 16, 2003, 06:22:24 pm »

BTW, say the government needed to increase revenue by 20% to pay off a war or something else we voted it to do.  How do they do it?  They increase the tax value of land by 20%.  How does that result:

Land value = $120
Improvement value = $100
Tenant rent = $220
Land tax = 95%

Landholder net income = $106 (yes, they get a raise)
Tenant net income = $180 (they voted for it, let them pay for it)
Government income = $114 (20% more than they had)

Note that the Single Tax does not penalize the minority (the landholders) for the democratic programs voted in by the majority (the tenants).  Thus, the majority will think twice before they vote themselves a fat benefit package, as they pay for it!

Still sound socialistic?

RS

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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #10 on: August 16, 2003, 07:37:52 pm »

Rythymstar,
If the govt, rather than the market determines the taxable value of the land, nobody would want to make any improvements on the land as doing so would introduce the unknown variable of taxes.
Currently, an average rent house has a land value of about 15% of the improvement value.  This is determined by the market value of lots vs  finished homes. If the rent is 1000 and the home is worth 100000, the annual tax is 15k-5%------considerably more than  the 12k gross annual rent.
Now the landlord has a negative cash flow and the govt turns to him to pay for a war ?  Sure sounds like landowners getting penalized if my arithmetic is correct.

If the answer is raise the rent, then the landlords option to do this hinges on the tenants alternatives. In such a pay-for-war scenario money would be tight and the landlord would lower his rent while his taxes are increased, thus a disproportionate load on the landlord. Passing the tax increase on is not a sure thing.

Also, you have not addressed the appreciation issue ( I guess there won't be any appreciation on a liability anyway)  will appreciation be taxed? How to compensate landowner for the one time loss of net value?

If, when such a plan is implemented, one landlord has a renthouse with a land value of 6% of the property value and another has a rent house with a land value of 35% of the property value, how will the bureaucrats compensate the latter?

Wouldn't everyone end up living in high rise apartments where land tax is low just to avoid tax?

If a landowner like me who doesn't recieve any rent and only profits by being a buy-low-sell-high-artist, does he pay any tax?












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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #11 on: August 16, 2003, 08:19:15 pm »

Rythymstar,
If the govt, rather than the market determines the taxable value of the land, nobody would want to make any improvements on the land as doing so would introduce the unknown variable of taxes.

I know this is hard to get used to, since land appraisal has always included improvements. It has taken me a while to see the picture.  However, the whole point of the Georgist  concept is the abolition of taxes on labor or the fruits of labor.  Therefore, improvements would not be discouraged by taxes.  

In fact, to hold land without improvement would be a tax burden with no recompense.   So, rather than retard improvement, the Single Tax would spur improvement to unprecedented levels, as there would be no tax consequences at all.  In fact, the only way you could hold title to land without getting a negative cash flow as a result would be to improve the land and make a profit by industry, rents, or user fees.

Quote
Currently, an average rent house has a land value of about 15% of the improvement value.  This is determined by the market value of lots vs  finished homes. If the rent is 1000 and the home is worth 100000, the annual tax is 15k-5%------considerably more than  the 12k gross annual rent.

I am not sure that the current value structure is not skewed in some way as a result of the current tax system, but I do recognize that actual valuations should be market driven.  However, the question remains as to what the market would value land at under the Single Tax.

Quote
Now the landlord has a negative cash flow and the govt turns to him to pay for a war ?  Sure sounds like landowners getting penalized if my arithmetic is correct.

To the contrary -- the landowner gets a 5% royalty on every tax dollar the government collects.  The tenant pays the tax, if the landowner properly passes the tax onto the tenant, not the landowner.  Of course, if there are no tenants, then the landowner must find another business to create a postive cash flow on the land (a factory, a water park, a garbage dump, etc.).  If they cannot, then why are they landowners to begin with?  Just to monopolize the land and keep others from turning it to productive use?   Keeping the land is fine, but either use it to the benefit of the economy, or pay the tax as an expense.

Quote
If the answer is raise the rent, then the landlords option to do this hinges on the tenants alternatives. In such a pay-for-war scenario money would be tight and the landlord would lower his rent while his taxes are increased, thus a disproportionate load on the landlord. Passing the tax increase on is not a sure thing.

The tenants pay no taxes.  They have 50% more money than they did before.  So, they can afford to pay a higher tenant rent to cover higher land taxes and higher improvement rents, if such becomes necessary.

Quote
Also, you have not addressed the appreciation issue ( I guess there won't be any appreciation on a liability anyway)  will appreciation be taxed?

The appreciation of your improvements will not be taxed at all.  Build a 50-unit apartment on a vacant lot and pay the exact same tax as the single-family dwelling on the lot next door.  You pocket the difference because you made the investment.  It is your money!

Quote
How to compensate landowner for the one time loss of net value?

I am not convinced that this even occurs.  As my spreadsheet (which I am happy to share) shows, the landholder makes more real money than before, as does the tenant.  The government is reduced by 2/3, but that's what we Libertarians want anyway, right?  And if the majority votes to spend more, they must do so knowing it comes out of their rents, while providing a 5% royalty to the landlord.  

Quote
If, when such a plan is implemented, one landlord has a renthouse with a land value of 6% of the property value and another has a rent house with a land value of 35% of the property value, how will the bureaucrats compensate the latter?

Such disparities would not exist in the Georgist system, as all lands in similar economic zones would be taxed the same.  See the picture here:

Click to see image

Quote
Wouldn't everyone end up living in high rise apartments where land tax is low just to avoid tax?

The free market would have a hand in the tax value, in the form of votes.  If we vote for exhorbitant programs via government, then we pay exhorbitant land taxes.  However, as tenants outnumber landholders, they would bear the brunt!

Quote
If a landowner like me who doesn't recieve any rent and only profits by being a buy-low-sell-high-artist, does he pay any tax?

Not if he sells fast enough!   However, I suggest that you really are not so much in the business of selling land (under the Georgist system, land is a liability), as improvements.  In some cases of excellent location, you might carry the tax and sell the unimproved land to someone who wanted to do the improvements themselves.  However, more likely, you would buy unimproved land very cheaply, then invest in the land by making (non-taxable) improvements, then sell the land based on the value of the improvements.  

IOW, the Georgist system removes the inflationary aspects of land speculation and shifts the economic emphasis to the production of useful improvements to the land.  I believe this would lead to an enormus economic expansion, especially when you consider that no labor or products or interest would be taxed!

RS
« Last Edit: August 16, 2003, 08:22:21 pm by RhythmStar »
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lloydbob1

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Re:Economics According To George (Henry George, that is...)
« Reply #12 on: August 16, 2003, 09:09:19 pm »

The only eqitable tax system is a per capita tax.
When the government incurs a legitimate expense the costs are divided up by the number of people in the geographical area that the program benifits.
An individual pays X, a family of 5 pays 5X.
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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #13 on: August 16, 2003, 09:22:41 pm »

Rythmstar,

You haven't answered the questions regarding the inequities of the transition from the current system to the George system.

Since all taxes are concentrated in the land rent tax, a vacancy could bankrupt a landlord quickly. Or is the tax only applied to income?

If, as you say, an owner of a 50 unit apt complex pays the same tax as the neighbor who has a single unit on an identical lot, there certainly would be a massive population shift to multi family units. The transition to George's system would be very costly to owners of property having a high land-to-value ratio.

As you explained it, we would have a land rent tax rather than land property tax or land capital gains tax, do I have this right?

Currently hundreds of thousands of landlords pay mortgages on their rent houses and have little cash flow at all. They hope to profit from appreciation. That's how it was for me.  Any disruption in cash flow would be disastrous. In the roller coaster years following such a transition most would get foreclosed.

If the gov't increases the tax value of the land to pay for a war, landlords in the above situation would bankrupt.

You say disparities in land-to-value ratios would not exist because all lands in similar economic zones would be taxed the same, but  properties in similar economic zones have can have drastically different land to value ratios due to square footage, waterfront etc. If You have a 800 sq ft waterfront cottage renting for 1200 a month and I have a 2000 sq ft home (not waterfront) across the street renting for 1200 a month, our land rent taxes wouldn't be the same. Under the Georgian system, you would be penalized with much higher tax since your land is worth 5 times as much as mine.

If the Georgian system removes the inflationary aspect of land speculation, are you saying that vacant, unimproved land would get taxed even if there is no rental income?

I do make most of my money on the buy-lo-sell-hi method. If I made improvements the IRS would re-categorize me as a dealer-developer and force me to pay self employment tax and regular income tax, instead I only pay 15% cap gains. How would George treat me?
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Brian Kelley

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Re:Economics According To George (Henry George, that is...)
« Reply #14 on: August 16, 2003, 10:35:19 pm »

GAAP do not qualify "unearned income"; the IRS does.

How do we divide the fruits of labor? "We" don't. You don't. I don't. Henry George doesn't. I keep what's mine, and you and George and everyone else leaves me alone. How about that?

Whenever I hear someone speak of "we", I start wondering what of mine he wants. In this case, it's income from real estate. It's the same with "fairness", which is a way for politicians to justify taking something of mine with which to buy votes.
« Last Edit: August 16, 2003, 10:38:43 pm by Brian Kelley »
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