J A N U A R Y 2 0 2 0 , V O L . 4 RSF DIGEST N E W S L E T T E R O F T H E R O B E R T S C H A L K E N B A C H F O U N D A T I O N

WHAT'S INSIDE?

GEARING UP FOR A NEW DECADE 2

CALLING ALL AUTHORS! 2

DIRECTORS' PERSPECTIVES 3

FEATURED PROJECTS 4

The Robert Schalkenbach Foundation (RSF) is a private operating foundation, founded in 1925, to promote public awareness of the social philosophy and economic reforms advocated by famed 19th century thinker and activist, .

Today, RSF remains true to its founding doctrine, and through efforts focused on education, communities, outreach, and publishing, works to create a world in which all people are afforded the basic necessities of life and the natural world is protected for generations to come. ______It is uite true that unearned increments in land are not the only form of unearned or undeserved proit which individuals are able to secure; but it is the principal form of unearned increment which is derived from processes which are not merely not beneicial, but which are positively Sir Winston Churchill detrimental to the general public.

- Winston Churchill

Unearned Increment (noun): an increase in the value of or land through no effort of the owner

P A G E 1 NEW UNDERTAKINGS, NEW STAFF B Y J O S I E F A A S S , E X E C U T I V E D I R E C T O R

It's a new year, and there are new really happen if their city or town things in the works at RSF! More embraced LVT. specifically, we've welcomed some new faces to our team - which in my As we embrace the new year and opinion, is the best way possible to be forward-looking projects, we are also starting off this new year and new focused on leveraging the Foundation's decade. past work. Making sure that RSF's roughly 100 years worth of documents Much of what we focus on has an and other materials are properly important spatial component. Land cataloged and easily accessible is key to Value Tax (LVT), for example, is all enabling everything we'll do this year, about identifying the portion of land's and in all the years to come. To this end, value that originates, not from the RSF is pleased to welcome Sanjida actions or investments of the owners, The holidays were great - now it's Sadeque to the staff as our new Office but from the publicly-provided full speed ahead! Organizer. benefits (like schools, safety, and infrastructure) its owners enjoy as a preliminary work to create an online Sanjida comes to us with a background result of their exclusive access to said mapping interface, which will give users in chemistry and plans to study land. Recapturing that unearned the ability to manipulate tax rates information sciences, and will be increment and using it to fund the (ranging from current scenarios to full working in our Manhattan office for the very public goods that create that LVT with two-rate options in between) next few months under the direction of enhanced value generates stable to see exactly how tax burdens fall our Operations and Finance Manager public revenues and deters both urban across parcels under the various Gail Lambert. sprawl and land speculation, while scenarios. This is a complex helping to ensure land is put to its undertaking, but ultimately we expect it As I've said before, RSF is small but highest and best use. to yield a tool suitable for inclusion on mighty. Even with these new the RSF and CPTR websites, and a way to (temporary) additions, you can still We believe that LVT is an all around explain the concept with clarity when count our staff on one hand, but that winning proposition, and clearly, the alking with curious, or even skeptical, doesn't slow us down! physical nature of land is a core local officials or community group element. But of course, LVT representatives about what would represents a departure from the status quo - a reshuffling of tax burdens, with some Calling All Authors! land uses and owners seeing lower tax bills as a result and others seeing Want to write a piece examining a current issue through a Georgist increases. Since lens? Great! We'd love to publish your work on our website and in our efforts through the Center for Property Tax this newsletter. Reform are all about working with Anyone who can write critically about today's world in a way communities - full of Who: that reflects the ideas of Henry George. real neighborhoods, people, and businesses - the importance of correctly identifying these What: "winners" and Blog posts for our website and this newsletter. "losers" cannot be overstated.

Recognizing the truth When: Anytime and all the time - we're always looking in the old adage "a for authors. picture is worth a thousand words, RSF has hired Kevin Frech Check out "Blog Author Information" on our as an intern from Where: website for full details. Temple University's Geographic Information Systems (GIS) program to serve as our Full-Stack Geospatial Analyst. In this role, Kevin will do the P A G E 2 DIRECTORS' PERSPECTIVES W H E R E T H E R S F B O A R D E X P L O R E S C U R R E N T A P P L I C A T I O N S A N D I M P L I C A T I O N S O F H E N R Y G E O R G E ' S T E A C H I N G S . WHAT'S SO SPECIAL ABOUT HENRY GEORGE ANYWAY?

B Y F R A N K D E J O N G

The many organizations around the world that work to popularize the work of nineteenth-century American economist Henry George have three Henry George making a speech as aprt of his mayoral campaign in 1897. goals: a just society, a green society, and a prosperous society. Collectively, these organizations constitute an interconnected think tank advocating Herman Daly. financing governments by collecting In his seminal book, Progress and baffled, and I had no good response “economic rent” in lieu of taxes on beyond muttering something about jobs, business and goods, and services. Poverty (1879), Henry George builds on the work of Adam Smith, David Ricardo, wasteful downtown surface parking lots.

Economic rent refers to revenue and , enumerating the multiple benefits to the economy and “But then everything will go condo, and without a corresponding cost of where will all the poor people go?” he production, such as the societal society when governments are financed by capturing economic rent. asked. surplus, or superprofits, that flow to monopoly-held assets like land, Taxing incomes makes people more When explaining the advantages of land resources (oil, copper, trees, water, value taxation, proponents encounter a etc.), the privilege to pollute, the expensive to... (cont'd on pg. 5) familiar set of counterarguments such electromagnetic spectrum, (includes as: all radio waves e.g., commercial radio How can the system be affordable for and television, microwaves, radar), SOLVING THE land rich but cash poor citizens? agricultural supply management What will happen to the farmers who quotas, drug patents, taxi medallions, "AFFORDABLE really work the land? et cetera. Aren’t accurate assessments HOUSING" impossible? (con't on pg. 6) Though this rightfully belongs to the community, it presently flows PROBLEM WITH mostly untaxed to private asset owners, forcing governments to LAND VALUE finance programs by employing TAXES economy-damaging taxes on profits, HG Trivia incomes, and sales. B Y M A T T L E I C H T E R Contemporary accounts This economic theory, often called state that 100,000 mourners land value taxation (LVT), is supported by classical economists “But then all real estate would go to its squeezed inside Grand Adam Smith, David Ricardo, John highest and best use,” the man Central Palace for George's Stuart Mill, and Henry George, by complained. memorial, while another prominent people like Winston 100,000 stood outside for Churchill, Dr. Sun Yet-Sen, Mark “Yes! Yes!” I replied. “That’s the point. Twain, and George Monbiot, and by That’s good.” lack of space. modern economists Joseph Stiglitz, Milton Friedman, Michael Hudson, and The man was trying very hard to understand my position but seemed

R S F D I G E S T P A G E 3 WHAT DO YOU income wage earners, despite the argue that tax flight and avoidance can progressive graduated income-tax rates. be dealt with by taxing companies KNOW ABOUT One third of all taxes is paid to state and headquartered in the United States on local governments, and sales taxes are their less-taxed income abroad. The TAXES? WRONG! especially regressive, taxing the poor United States could also tax foreign proportionately higher. Lower-income companies’ sales in the United States. B Y F R E D F O L D V A R Y families also pay substantial amounts of payroll taxes. But such analysis overlooks the theory of optimal public finance. One foundation Two economists at the University of Saez and Zucman helped to craft of economic analysis is the “law of California at Berkeley, Emmanuel Saez presidential candidate Elizabeth demand.” Higher costs and lower gains and Gabriel Zucman, have written a Warren’s proposed tax on wealth. They reduce the quantities... (cont'd on pg. 7) book, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay. A review by William G. Gale in the Brookings web site (Oct. 23, 2019) is titled “Saez and Zucman say that everything you thought you knew about tax policy is wrong.” Saez and Zucman also wrote an op-ed in the New York Times, Oct. 11, 2019, titled “How to Tax Our Way Back to Justice”. It is subtitled “It is absurd that the working class is now paying higher tax rates than the richest people in America.”

The authors calculated how tax burdens are distributed among income categories. They pointed out that the United States tax system is a regressive one, if we compare the richest 400 adults to the tota______l tax rates paid by low- Senator and 2020 Presidential hopeful, Elizabeth Warren FEATURED PROJECTS R S F C O N D U C T S A N D S U P P O R T S W O R K I N C O M M U N I T I E S , E D U C A T I O N , O U T R E A C H , A N D P U B L I S H I N G Minter, RSF is currently creating several digital and print-on-demand ANNOTATED BOOK formats for our titles, starting with the most popular. Check our WORKS OF DIGITIZATION bookstore in the coming months to access these new options! HENRY EFFORTS R S F O F F I C E , GEORGE M A N H A T T A N V O L U M E I V The Robert Shalkenbach Foundation has long sold and distributed The long-awaited fourth volume of publications by Henry George and the six volume Annotated Works of like-minded thinkers. While we Henry George is currently in recognize that making these seminal production, with an anticipated texts available to readers worldwide is release date late in 2020. critical to fulfilling our mission, we also understand that there are Made possible through the tireless advantages - both in terms of efforts of co-Editors Francis Peddle resource efficiency and overall and William Peirce and Assistant accessibility - to transitioning our Editor Alexandra Lough, the series operations from primarily hard copy serves as the definitive source for distribution to a more digital-heavy scholars and Henry George approach. Drake's P&P, an RSF best seller, will be enthusiasts. Volumes I - III are among the first titles to be fully digitized. currently available for purchase in the Led by Digital Projects Manager Vajra RSF online bookstore.

R S F D I G E S T P A G E 4 What's so special about Henry George principal cause of recessions and A farmer pays the rental value on a anyway? (cont'd from pg. 3) depressions, like the devastation 100 acres valued at $1,000,000 or 2008 crash. $50,000 per annum, but pays no hire, taxing capital increases the cost of income taxes or tax on equipment or borrowing, taxing profits pushes Capturing speculative profits for buildings (improvements), allowing marginal enterprises closer to public purposes gives capital no the farmer to hire employees, and bankruptcy, and taxing consumption option but to invest in the productive build farm labor accommodation, raises prices. Economists refer to these economy, in the form of labor- pre- and post-harvest infrastructure, taxes as dead weight taxes, because they intensive production, which raises and farm-gate sales facilities, without stifle economic vitality and exacerbate wages and spawns new businesses. additional taxes. unemployment and poverty. LVT is a levy on the privilege of Alternately, funding government owning land (buildings are ignored by programs by capturing the community- the tax man). Fees are applied equally Under LVT, there are no income, generated, “unearned income” (that to vacant and productively used land, accrues to desirable finite assets) reducing the amount of vacant and bu siness, or goods-and-services taxes, increases economic efficiency, reduces inefficiently used land. LVT poverty and unemployment, checks eliminates land speculation, since suburban sprawl, conserves resources, rises in land value are captured by and no taxes on buildings or and minimizes pollution. the community and do not flow to the owner. improvements.

Land value taxes cannot be evaded, thus eliminating the problems of A landlord is motivated to renovate offshore tax havens, the underground and upgrade a multiunit building economy, and tax cheating. because there are no taxes on materials or labor, nor will taxes Economic rent capture scenarios increase upon completion, since LVT h s a

l is levied only against the lot, not the p s n U (Under LVT, there are no income, building. n o

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s business, or goods-and-services taxes, n y z s

u and no taxes on buildings or A carbon fee-and-dividend system is T

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h improvements.) in place to address climate change. c i M

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h A residential property is valued at A buyer negotiates a loan only for the P $400,000. The lot and the house are buildings. The land is secured by Cul-de-sacs are a familiar feature of suburban each valued at $200,000. LVT ignores agreeing to remit the monthly LVT sprawl in America. buildings but charges the rental value fee. of the lot, about 5 percent of market Collecting unearned income rather value. The owner must remit $10,000 Economic rent capture has been used than earned income diffuses per year to the municipality. effectively in the past and is clearly opposition to paying taxes, since beneficial in jurisdictions where used people keep the hard-earned cash A business is situated on 2 acres of today. Alberta and Winnipeg used it in earned from jobs and businesses, land, the parcel market value at the early twentieth century; Japan, paying instead only for their $500,000. The owner pays the rental Hong Kong and Taiwan are more recent privileged access to community- value (5 percent) or $25,000 in LVT, examples; and it is how Sydney paid for owned assets. but no other taxes. their Olympics. Alaska, Alberta, and

many other countries use it when Collecting economic rent from the An employee’s gross income is lower collecting oil royalties. relatively few sources is far less after LVT, but the net income is the complex than administering and same since no income taxes are With communism, socialism, and enforcing the taxation of millions of deducted. Marxism now abandoned in favor of jobs, businesses, and purchases. market economics, with interventionist

A low income senior cannot afford Keynesianism discredited as a long term Infrastructure becomes self-financing the LVT so a reverse mortgage is solution, and with trickle-down since capturing the rise in land value negotiated to defer the LVT until economics mocked as a cynical from publicly funded construction time of sale. justification for unconscionable wealth projects is used to finance the disparity, governments now have the projects. Warranted infrastructure A student finds inexpensive rental opportunity to return to what Fred returns more than its cost in the form accommodation in a multiunit Foldvary calls “foundational economics,” of local land value rise. building since the building is sited on to quash the damaging speculative

a small lot and the landlord pays no economy and allow a purely Economic rent capture eliminates real tax on the value of the building. entrepreneurial economy to flourish. estate speculation, which is the

R S F D I G E S T P A G E 5 Solving the "Affordable Housing" restrictions on development. In the case of applying land value Problem with Land Value Tax (cont'd taxation locally in the United States, from pg. 3) Modular Construction high mobility amplifies these kinds of consequences, and the beneficiaries The exchange recounted above If, as developers say, construction costs may be the people who need help the highlights the difficulties in trying to ruin the viability of inclusionary zoning, least, since wealthier families tend to be explain the idea to someone who they could embrace an obvious more mobile than the less well-to-do. thoroughly understands what land value alternative: reducing costs by shifting Rather than letting land value taxes taxes could achieve but rejects them to modular-housing technology. become the victims of their own nonetheless on other grounds. success, governments can use Reflecting on it, I see where my friend The concept of assembly-line homes is inclusionary zoning and promote was coming from: Land value taxation not new, but it lacks substantial backing modular construction to shield the should, in theory, raise total wages and in the United States. Investors appear to indigenous poor. These policies can greatly increase the housing supply; but be changing their minds, however. work together to keep poorer residents people should be mobile too, even Thanks to housing demand and a in their communities and prevent high- including nonresidents who come in to shortage of construction workers, times income workers from moving into the elbow out poorer ones for the benefits are changing, and the scale is condos developers would otherwise the system provides. In Minneapolis achievable. One Minnesota housing gladly build for them. where I live, we have seen significant company cranks out complete houses in growth in high-end housing in recent just ten days. Its factory floor is the size There are no good arguments against years but very little for the poor. of two football fields, and employees land value taxes because they drain work on several homes at once, monopoly incomes and raise productive So what can a local government do to installing even pipes and wires as they activity. However, advancing them ensure that land value taxes help go. requires winning over social-justice the people who need help the most, advocates who prioritize keeping rather than high-income newcomers? I The savings in the cost of this the poor near urban centers. Coupling propose two answers: construction as compared to that of land value taxes with inclusionary ordinary on-site construction are zoning and modular construction can Inclusionary zoning; and significant, up to 40 percent per project. win over that constituency. These kinds of savings are extraordinary Modular construction when apartment buildings can cost more than $10 million. Undoubtedly, Inclusionary Zoning then, it should be very easy to build What Do You Know About Taxes? more affordable homes for lower Wrong! (cont'd from pg. 4) Inclusionary zoning, also called “housing income residents with cheaper mandates,” requires developers of new construction costs. of goods produced and bought. The to set aside a certain number three ways that quantities are reduced:

. the taxed items can shrink, hide, or flee. o of units for low-income tenants. These . r . s

tenants would need to submit N O I T

C A global approach to taxation, taxing documentation to qualify for the units. U R T

S everything that moves, world-wide, In a post I wrote for the Robert N O C

Schalkenbach Foundation’s blog I R will indeed reduce flight. But the other A L

U two means of quantity reduction still endorsed a recommendation for D O M occur. Production and employment will improving inclusionary zoning by A M O

K lessen, as the higher-cost enterprises requiring tenants to renew their y b

o

t shut down. And economic activity will qualifications on a periodic basis. That o h way, the units would turn over more P Workers assembling a modular house. hide, will go underground, as indeed frequently and that would ensure that already happens throughout much of low-income tenants had opportunities the world. Moreover, if the US to live in them. Market Forces Alone May Not Be government taxes everything related to Enough the USA, there will be a high demand for A problem with inclusionary zoning is tax havens. Companies and their jobs that developers tend to dislike it because Policies designed to alleviate poverty will flee, and their sales to the USA will it forces them to sell their construction always seem to have self-defeating shrink or hide. High taxes reduce to landlords for less than the market consequences, even when they rely on entrepreneurship and they reduce would normally allow. An article on market forces. This is because access to honesty, as tax cheaters gain and honest Minnesota Public Radio’s website lists the market is the problem in the first payers lose. some examples of how developers push place. A strong example of this is back against inclusionary zoning: relaxing zoning regulations, or In his book review, Gale writes that Saez “upzoning.” Upzoning should enable and Zucman “challenge seemingly every Developers will shift their focus to developers to build towering, affordable fundamental element of conventional updating older housing that they can apartment buildings. In at least one tax policy analysis.” Yes, they do sell at market rates, and example, though, it just increased calculate taxes in ways different from They will instead focus on the property values and didn’t affect supply mainstream and official methods, but suburbs, which place fewer at all. Nor does upzoning solve the they do not challenge the law of migration problem outlined above. demand. P A G E 6

Therefore the analysis of Saez and government, paid for with taxes on and income. Zucman is not radical, in the sense goods and labor. Worker-tenants get of going to the root of the economic, double billed, paying both taxes and How much revenue could a land-value ethical, and governance aspects of higher rent, while landowners get the tax obtain? A good indicator is by taxation. The principle of optimal public subsidy of higher property value. comparison with Australia. There, the finance policy was set forth by Frank How is this just? The remedy is to not calculation is that land rent is one-third Ramsey, and is named the Ramsey Rule: tax labor and instead to only tax of national income. (See The Taxable tax first the items that are the least land. Capacity of Australian Land and elastic in supply or demand. Thus, tax Resources by Terry Dwyer.) With ten first the items which do not flee, shrink, And land cannot hide. The landowner times the population density, land rent or flee at all. can hide the title, but that does not should be at least that portion in the matter. The tax bill is sent to whomever USA, or about $7 trillion per year. And One item with an inelastic demand that possesses the title. The landowner also if other taxes are eliminated, the rent is urgently needed is life-saving cannot hide the amount of land value, as would increase much more. How much? medicine, and it would be immoral to its market value is not dependent on his Nobody knows, but economist Mason tax-punish sick people facing death. The private calculation but is calculated by Gaffney has shown that there would be a moral alternative is thus on the supply professional real estate assessors and “quantum leap” of greater production side. The American economist Henry appraisers. and therefore that much more land rent. George identified the supply which could be taxed without economic So a tax on land value cannot be dodged, So, is everything you knew about taxes damage: land value or land rent. Tax and that solves one of the problems wrong? That seems to apply land, and it will not flee. Land also does raised by Saez and Zucman. What about to economists who fail to take economic not shrink when taxed. the problem of inequality? Most of the logic to its ultimate public-finance land value is owned by the rich, Ramsey-George conclusion: don’t tax What about the problem of justice? including corporate land owned by anything that moves. Tax what cannot Much of the value of land comes from shareholders. The ownership of real flee, shrink, or hide, namely, land. the public goods provided by estate is highly correlated with wealth

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