Origins of Greentax

1
Origins of Greentax Sept. 7, 2004 Gary
Flomenhoft, Research Associate Gund
Institute Burlington, VT
2
There is nothing more difficult to carry out,
more doubtful of success, nor more dangerous to
handle, than to initiate a new order of things.
For those who would institute change have enemies
in all those who profit by the old order, and
they have only lukewarm defenders in all those
who would profit by the new order. ---Nic
olo Machiavelli, 1490
3
ECONOMIC BACKGROUND
4
Polanyi-Great Transformation

• Fictitious commodities
• Sold in markets for the first time
• LAND
• Commons or feudal to markets
• LABOR
• Humans sold on labor market
• MONEY
• means of exchange to commodity
• C-C C-M-C
• M-C-M M-M (95)

5
CLASSICAL ECONOMICS 1650-1890

• FACTORS OF PRODUCTION
• LANDR (natural resources)
• LABORL
• CAPITALK

Initially Labor transforms land (raw materials)
into capital Then Labor and capital applied to
land makes more capital
6
CLASSICAL ECONOMICS

• RETURNS TO FACTORS
• LAND (R) RENT
• LABOR (L) WAGES
• CAPITAL (K) INTEREST

7
CLASSICAL ECONOMICS

• HISTORICAL FIGURES
• CAPITAL (K) Adam Smith
• LABOR (L) Karl Marx
• LAND (R) Henry George

8
CLASSICAL ECONOMICS
Land (Ingredients)


Labor (Chef )

Bread
Capital (oven)
Capital (Mixing bowl)
9
NEO-CLASSICAL ECONOMICS 1890-
No Ingredients, only labor and capital P
f(L,K) ALa . BKb (Cobb-Douglas multiplication)
Labor (Chef )

x
Bread?
Capital (oven)
X
Capital (Mixing bowl)
10
NEO-CLASSICAL ECONOMICS
INFINITE SUBSTITUTABILITY 2P f(L,K) 2ALa .
2BKb
More Chefs

x
More Bread?
or Bigger Mixing bowl
11
HISTORICAL BACKGROUND
12
CLASSICAL ECONOMISTS ON LAND
Physiocrats Quesnay agricultural basis of
economy Limpot unique land tax David
Ricardo- Law of RentDifference in production
(return) over the worst landRent Unearned
incrementunearned profit from land inflation
13
CLASSICAL ECONOMISTS ON LAND
Adam Smith Ground rents are a species of
revenue which the owner, in many cases, enjoys
without any care of attention of his own. Ground
rents are therefore, perhaps a species of revenue
which can best bear to have a peculiar tax
imposed upon them. John Stuart
Mill 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.
14
CLASSICAL ECONOMISTS ON LAND
Thomas Paine, Agrarian Justice 1797 Men did
not make the earth...it is the value of the
improvements only, and not the earth itself, that
is individual property...Every proprietor owes to
the community a ground rent for the land which he
holds....from this ground rent...I...propose to
create a national fund, out of which there shall
be paid to every person...a sum.
Alaska Oil Dividend
15
RENT DIVIDENDS-BASIC INCOME
Alaska Oil Dividend
16
HISTORY OF LAND VALUE TAX
Henry George Progress and Poverty 1879. To
abolish all taxation save that upon land
values The taking by the community, for the use
of the community, of that value which is the
creation of the community. Poverty deepens as
wealth increases, and wages are forced down while
productive power grows, because land, which is
the source of all wealth and the field of all
labor, is monopolized. The single tax.
Forerunner to modern day Green tax shift tax
bads, not goods. Basis of modern assessments.
17
HISTORY OF LAND VALUE TAX
NY Mayoral election of 1886 Abraham Hewitt
(D)-stolen by Tammany hall Theodore Roosevelt
(R)-3rd Henry George (Labor)-won Attacks from
left and right Capitalists last ditch. ---Karl
Marx If George wins landowners should go out on
their vacant land and hang themselves. ---
Boss Croker
NY Mayoral election of 1897 George died 4 days
before.
18
SINGLE TAX ADVOCATES
TOLSTOY SUN YAT SEN HELEN KELLER ALBERT
EINSTEIN CHANG KAI SHEK TEDDY ROOSEVELT MARK TWAIN
19
Modern Economists
Right Land tax is the least bad tax
---Milton Friedman Left Usurious rent is
the cause of worldwide poverty ---Joseph
Stiglitz Green Taxation of value added by
labor and capital is certainly legitimate. But it
is both more legitimate and less necessary after
we have, as much as possible, captured natural
resource rents for public revenue. ---Herman
Daly
20
TAX ON BUILDINGS - production cost
P
S1
CS
p1
PS
D
q1
Q
21
TAX ON BUILDINGS - production cost
S2
P
S1
CS
p2
Deadweight loss
p1
PS
tax
tax
D
q1
q2
Q
22
TAX ON LAND - no production cost
S
Buy land, they aint making any more.
-Will Rogers
P
P
tax?
P1
tax
tax
D
Q
Q1
Q
23
LAND SPECULATION
Q Why is speculation bad?

• A
• Drives up price of land
• Creates Sprawl
• Produces nothing
• Withholds land from market
• Creates slums
• Flipping

VT anti-speculation tax only applies to 25 acre
industrial and forest land PROP 13 corporations
avoid through selling shares
24
LAND SPECULATION
Q What good or service does a land speculator
provide to the market?
A Nothing.
The land speculator profits in direct proportion
to the damage done to society -Winston
Churchill
25
LAND SPECULATION
Q How does speculation create sprawl?
A By withholding land from the market, and
holding for gain, price is driven up, and people
have to move further out from center city to find
available affordable land. (30 vacant
land-Brookings)
The most comfortable, but also the most
unproductive way for a capitalist to increase his
fortune, is to put all monies in sites and await
that point in time when a society, hungering for
land, has to pay his price. ---Andrew Carnegie
26
LAND SPECULATION
Q What is the formula for return on speculation?
A ROI Annual return - holding cost Return
annual land inflation annual income Holding
cost property tax(land improvements) bank
interest on loan maintenance
27
MAXIMIZE RETURN
Annual Return annual land inflation annual
income 16.4 ?
28
MINIMIZE EXPENSES
Holding cost property tax (land
improvements) bank interest on loan
maintenance land tax improvement tax int
maint (1.7 x land) (1.7 x blds) int (5?)
maint. Incentives Minimize land
assessment Minimize building improvements
slums Low interest rate Minimize maintenanceslums
2004
29
Return on speculation
30
What makes housing expensive?
31
70 homeowners are passive speculators zero sum
game
Land value
PAINE RECYCLE LAND RENT?
32
RENT COSTS
Whether it is the man or the earth I own, the
bird or its food, it is essentially the same
thing. ---Arthur Schopenhauer
33
RENT COSTS
34
VT FAMILY INCOME
FROM HOUSINGWAGES IN VERMONT VT HOUSING COUNCIL
35
RENT COSTS - CLT
Community Land Trust (CLT) creates perpetually
affordable land by taking land off the
market. Created by Swann and Borsodi - Georgists
CLT
Land is not the only monopoly, but its the
mother of all monopolies. ---Winston
Churchill
36
Land costs
According to Georgist theory taxing land at its
full Rental value would reduce the price to
zero. This would create leasehold vs. freehold
ownership Tax essentially becomes a lease payment
for land.
37
Leashold Examples
Hong Kong - 99 yr leases Canberra, Australia -
municipal leasehold (backtracking)
38
3 Ways to control land prices

• Community land trust
• Municipal leasehold
• Tax land at rental value

39
What makes land valuable? Publicly created
Population demand natural features public
improvements public services fire, police,
schools, waste private investment in the
area business activity limited supply zoning growt
h restrictions (Santa Cruz) growth boundaries
Not due to private effort
40
What makes land valuable? Publicly created
Takings- private compensation when government
action reduces property value
Givings - public compensation when government
action increases property value
41
Value Recapture of public investments
Wright Act 1889 Tulare, CA Irrigation
District Financed by tax on land value. Trees,
vines, structures, etc. on the land were exempt
CA Central Valley Irrigation Districts
San Juacquin Valley Agriculture
80 produce in US
42
Value Recapture of public investments
Crossrail the London rail project now under
consideration to fund by land tax.
Studies say public transit could pay for itself
through capture of increase in land values around
transit stops.
43
What makes buildings valuable-Privately created
Work Investment Materials Architecture Etc.
Value created through private effort
44
LAND TAX IS PART OF GREEN TAX SHIFT
Pay for what you take, not for what you
make Tax bads not goods Tax waste not
work
45
NW Green Tax shift includes LVT
WORK INCOME SALES
SOURCES SITES SINKS
46
SUMMARY OF INCENTIVES
47
HISTORICAL APPLICATIONS
Denmark 1790s, 1950s, 1960s California
1890s irrigation districts Australia
1930s-present, Sydney, Canberra-leashold New
Zealand 1930s-present 80 site only South
Africa Jo-berg Hong Kong leasehold Singapore
rent collection Taiwan 1940s-land to the
tiller NY city 1920s 10 yr. abatement of
improvements Pennsylvania 1913-present
48
MODERN APPLICATIONS
Australia, New Zealand Pennsylvania, date adopted
Aliquippa Schools '93 Aliquippa '88 Clairton
'89 Coatesville '91 Connellsville '92 DuBois
'91 Duquesne '85 Harrisburg '75 Lock Haven
'91 McKeesport '80 New Castle '82 Oil City
'89 Pittsburgh '13 Scranton '13 Titusville
'90 Washington '85
49
MODERN APPLICATIONS
City Ratio
Pittsburgh Scranton Harrisburg McKeesport New
Castle Washington Duquesne Aliquippa Clairton Oil
City Titusville
5.61 to 1 3.90 to 1 4.00 to 1 4.00 to 1 1.75 to
1 4.35 to 1 5.61 to 1 16.20 to 1 4.76 to 1 1.23
to 1 8.68 to 1
50
MODERN APPLICATIONS
Philadelphia City Controller-Saidel Tax Reform
Commission Board of Realtors 10,000 Friends of
Pennsylvania
51
Harrisburg-Poster Child for LVT
1983 listed as 2nd most distressed city in US.
The number of vacant structures, over 4200 in
1982, is today less than 500 (1994) 80
reduction in vacancy. With a resident
population of 53,000, today there are 4,700 more
city residents employed than in 1982. The
crime rate has dropped 22.5 since 1981.
The fire rate has dropped 51 since 1982.
Number of businesses tripled to 3000 3.5B
invested in projects These results are
especially noteworthy when one considers the fact
that 41 of the land and buildings of Harrisburg
cannot be taxed by the city because it is owned
by the state or non-profit bodies.
52
Vermont Property Land Tax-shift Study
Application to Burlington
53
Vermont Property Tax-shift Study Criteria

• Revenue neutral
• 50 or 100 shift to land value tax statewide
• Total revenue divided by total land assessment
  land value tax rate

54
Vermont Property Tax-shift Study Limitations

• Single rate statewide city by city
• No separation of school district from municipal
  tax district
• No adjustment for common level appraisal

55
Burlington Current System yr-2000 by GPC
56
(No Transcript)
57
Burlington 100 of tax from land
58
ASSESSMENTS-2000
59
Statewide WINNERS and LOSERS BY GPC
LOSERS
WINNERS
60
(No Transcript)
61
Burlington WINNERS and LOSERS BY GPC
LOSERS
WINNERS
62
(No Transcript)
63
Burlington BIGGEST LOSERS
64
Burlington BIGGEST WINNERS
65
Burlington RESULTS BY PROPERTY CLASS
66
LESSONS FROM THE PAST

• Get zoning/set-asides in place to protect
  environmental/agricultural assets
• Get assessments right
• Dont implement at same time as reassessment
  (Amsterdam, NY, Pittsburgh, PA)
• Implement gradually ie over 5 years
• Alaska dividend-irreversible