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PROGRESS AND POVERTY
VT LAW SCHOOL
JULY 16, 2004
Gary Flomenhoft, Research Associate
Gund Institute
Burlington, VT
“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.”
---Nicolo Machiavelli,
1490
ECONOMIC BACKGROUND
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%)
FACTORS OF
PRODUCTION:
LAND=R (natural
resources)
LABOR=L
CAPITAL=KInitially: Labor transforms land (raw
materials) into capital
Then: Labor and capital applied to land
makes more capital
CLASSICAL ECONOMICS ~1650-
1890
RETURNS TO FACTORS:
LAND (R) = RENT
LABOR (L) = WAGES
CAPITAL (K) = INTEREST
CLASSICAL ECONOMICS
HISTORICAL FIGURES
CAPITAL (K) = Adam Smith
LABOR (L) = Karl Marx
LAND (R) = Henry George
CLASSICAL ECONOMICS
=
Land (Ingredients)
Labor
(Chef )
Capital (Mixing
bowl)
+
+ Bread
Capital
(oven)
CLASSICAL ECONOMICS
=
NEO-CLASSICAL ECONOMICS 1890-
No Ingredients, only labor and capital
P = f(L,K)= ALa . BKb (Cobb-Douglas
multiplication)
Labor (Chef )
Capital (Mixing bowl)
xBread
?Capital
(oven)X
=
NEO-CLASSICAL
ECONOMICSINFINITE SUBSTITUTABILITY:
2P = f(L,K)= 2ALa . 2BKb
More Chefs
or Bigger Mixing bowl
x
More
Bread
?
HISTORICAL BACKGROUND
CLASSICAL ECONOMISTS ON LAND
Physiocrats
Quesnay; agricultural basis of
economy: L’impot unique = land
tax
David Ricardo-
Law of Rent=Difference in
production (return) over the worst
land=Rent
Unearned increment=unearned
profit from land inflation
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.”
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.”
21 years of dividends
2002 $1,540.76
2001 $1,850.28
2000 $1,963.86
1999 $1,769.84
1998 $1,540.88
1997 $1,296.54
1996 $1,130.68
1995 $990.30
1994 $983.90
1993 $949.46
1992 $915.84
1991 $931.34
1990 $952.63
1989 $873.16
1988 $826.93
1987 $708.19
1986 $556.26
1985 $404.00
1984 $331.29
1983 $386.15
1982 $1,000.00
Alaska Oil
Dividend
RENT DIVIDENDS-BASIC INCOME
21 years of dividends
2002 $1,540.76
2001 $1,850.28
2000 $1,963.86
1999 $1,769.84
1998 $1,540.88
1997 $1,296.54
1996 $1,130.68
1995 $990.30
1994 $983.90
1993 $949.46
1992 $915.84
1991 $931.34
1990 $952.63
1989 $873.16
1988 $826.93
1987 $708.19
1986 $556.26
1985 $404.00
1984 $331.29
1983 $386.15
1982 $1,000.00
Alaska Oil
Dividend
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.
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.
SINGLE TAX ADVOCATES
TOLSTOY
SUN YAT SEN
HELEN KELLER
ALBERT EINSTEIN
CHANG KAI SHEK
TEDDY ROOSEVELT
MARK TWAIN
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
TAX ON BUILDINGS - production cost
S
1
D
P
Q
p1
q1
CS
PS
S1
D
P
Q
p1
q1
CS
PS
tax
S2
p2
q2
tax
Deadweightloss
TAX ON BUILDINGS - production cost
TAX ON LAND - no production cost
D
P
Q
tax
S
P1
tax?
Q1
tax
“Buy land, they ain’t
making any more.”
-Will Rogers
Q*
P*
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
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
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
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
MAXIMIZE RETURN
Annual Return = annual land inflation + annual
income
= 6.1% + ?
YEAR BURL MEDIAN
HOME PRICE
Total
increase
Annual
increase since
1970
1970 $21,500
2000 $127,600 493.5% 6.1%
2004 $226,000 951.1% 7.1%
2005 $242,000 1025.6% 7.2%
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 maintenance=slums
2004
Return on speculation
What makes housing expensive?
70% homeowners are passive speculators: zero sum
game
Land value
PAINE:
RECYCLE
LAND RENT?
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
RENT COSTS
VT FAMILY INCOME
FROM:
HOUSING&WAGES
IN VERMONT
VT HOUSING
COUNCIL
RENT COSTS - CLT
“Land is not the only monopoly, but it’s the mother
of all monopolies.”
---Winston Churchill
Community Land Trust (CLT) creates
perpetually affordable land by taking land off
the market.
Created by Swann and Borsodi - Georgists
CLT
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.
Leashold Examples
Hong Kong - 99 yr leases
Canberra, Australia - municipal leasehold
(backtracking)
3 Ways to control land prices
1) Community land trust
2) Municipal leasehold
3) Tax land at rental value
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
growth restrictions (Santa Cruz)
growth boundaries
Not due to private effort
What makes land valuable? Publicly created
“Takings”- private compensation when
government action reduces property value
“Givings” - public compensation when
government action increases property value
“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
“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.
What makes buildings valuable-Privately
created
Work
Investment
Materials
Architecture
Etc.
Value created through private effort
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”
NW Green Tax shift includes LVT
SOURCES
SITES
SINKS
WORK
INCOME
SALES
SUMMARY OF INCENTIVES
HISTORICAL APPLICATIONS
Denmark: 1790’s, 1950’s, 1960’s
California: 1890’s irrigation districts
Australia: 1930’s-present, Sydney, Canberra-
leashold
New Zealand: 1930’s-present 80% site only
South Africa: Jo-berg
Hong Kong: leasehold
Singapore: rent collection
Taiwan: 1940’s-land to the tiller
NY city 1920’s: 10 yr. abatement of improvements
Pennsylvania: 1913-present
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
MODERN APPLICATIONS
City
RatioPittsburgh
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
MODERN APPLICATIONS
Philadelphia
City Controller-Saidel
Tax Reform Commission
Board of Realtors
10,000 Friends of Pennsylvania
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.
Vermont Property Land Tax-shift
Study
Application to Burlington
1) Revenue neutral
2) 50% or 100% shift to land value tax
statewide
3) Total revenue divided by total land
assessment =land value tax rate
Vermont Property Tax-shift Study
Criteria
1) Single rate statewide & city by city
2) No separation of school district from
municipal tax district
3) No adjustment for common level appraisal
Vermont Property Tax-shift Study Limitations
Burlington Current System yr-2000 by GPC
Current combined Tax
Yield is 100% from total assessment
Land Yield from total assessment = 33.18%
Current Single Rate = $24.65 per $1000
Gross Property # Building Land Total
bld/ land Total % total
class Parcels Value Value Value Ratio revenue Yield
Agricultural 5 $114.9M $419.5K $408.0K 0.27 $10K 0.00%
Commercial/ Industrial 1,130 $377.4M $153.4M $519.7M 2.46 $12.8M 32.6%
Residential 8,925 $699.2M $375.0M $1073.5M 1.86 $26.4M 67.40%
Total 10,060 $1,076.7M $528.8M $1,593.6M 2.04 $39.3M
Burlington 100% of tax from land
Example of Tax on 100% Land
Increasing the yield from land to 100%
Reducing the yield from improvements to 0%
Land Rate = $74.27 per $1,000
Improvement Rate = $0.00 per $1,000
Total Diff w/ % Diff w/ Ave diff % Total
100% land 100% land 100%L per parc Yield
Agricultural $31.1K $21.1K 210% $4,220 0.1%
Commercial/ Industrial $11.4M -$1.4M -11% -$1,252 29.00%
Residential $27.9M $1.4M 5% $156 70.90%
Total $39.3M
2000 BLD LAND TOTAL RATIO
State $12.2B $5.4B $17.8B 2.26%
68.8% 30.4% 100%
Burlington $1.1B $.53B 1.59$B(8.9% of state)
2.04%
67.6% 33.2% 100%
-13.5%/yr
5 YR SHIFT-1 54.1% 45.9% 100%
2 40.6% 54.4% 100%
3 27.1% 72.9% 100%
4 13.6% 86.1% 100%
5 0% 100% 100%
ASSESSMENTS-2000
GrossPropertyClassNumber_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 1319 $8,916
Commercial/Industrial 3082 $8,283
Not Available 5 $6,528
Residential 68916 $3,144
Total 73322 $3,464
Statewide WINNERS and LOSERS BY GPC
LOSERS
WINNERS
GrossPropertyClassNumber_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 324 -$6,714
Commercial/Industrial 5794 -$10,927
Not Available 5610 -$6
Residential 87837 -$2,198
Total 99565 -$2,597
Burlington WINNERS and LOSERS BY GPC
GrossPropertyClassNumber_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 4 $11,443
Commercial/Industrial 605 $11,088
Residential 6,437 $2,617
Total 7,046 $3,350
LOSERS
WINNERSGrossPropertyClass
Number_of_Parcels
AvgParcelDiffFromCurrent
Agricultural 1 -$1,256
Commercial/Industrial 525 -$14,080
Residential 2488 -$3,820
Total 3014 -$5,606
Burlington BIGGEST LOSERS
Acres Prp Cl Owner Name Street Name $ Diff
6.21 CL MCAULEY SQUARE HOUSE 123 ST PAUL STREET $534,736
16.72 RL FLYNN EST J J TRUSTEE ATTN PRISCILLA S $324,133
2.16 C DONOHOE O'BRIEN BOX 119 $237,471
4.89 C LAKE CHAMPLAIN KING STREET $200,695
2.06 CL PAM-RADISSON 60 BATTERY STREET $198,870
1.21 CL DONOHOE O'BRIEN BOX 119 $152,246
3.3 CL UNIVERSITY OF VERMONT C/O LAND $147,935
1 CL CODY CHEVROLET INC ET L C T $126,370
1.79 C HOWARD BANK N A 111 MAIN STREET $110,327
0.31 CL CHITTENDEN COUNTY OF L C T $95,316
0.85 C CHITTENDEN TRUST CO P O BOX 820 $90,503
Acres Prp Cls Owner Name Street name $ Diff
0 C RAD-BURL L L C PAM-RADISSON -$268,344.00
0 C STARR FARM C/O VENCOR INC -$241,677.00
25.93 CA NORTHGATE HOUSING P O BOX 3094 -$225,725.00
0.25 C BURLINGTON SEVEN P O BOX 119 -$206,911.00
0.91 C VERMONT SUBACURE LLC P O BOX 1103 -$194,112.00
0 CC PECOR, RAYMOND C JR KING STREET -$189,769.00
1.77 C THE MAY DEPARTMENT 611 OLIVE STREET -$156,388.00
0 C FIRST HEALTHCARE CORP 3300 AEGON CENTER -$145,538.00
0 C DONOHOE O'BRIEN BOX 119 -$140,337.00
0 C BURLINGTON SQUARE CURTIS CENTER -$130,232.00
Burlington BIGGEST WINNERS
Prop Property Bldg/
Cls Class # Building Land Total Land Total Total Diff w/ % Diff w/
Code Name Parcels Value Value Value Ratio Current 100% Land 100% Land 100% L
C Commercial 368 $184,002,513 $81,786,800 $264,356,721 2.25 $6,515,422 $6,074,324 -$441,099 -7%
CA Commercial Apartments 350 $101,175,845 $28,664,900 $129,709,145 3.53 $3,196,854 $2,128,948 -$1,067,906 -33%
CC Commercial Condo 83 $30,107,301 $804,500 $30,858,401 37.42 $760,546 $59,750 -$700,796 -92%
CL Commercial Land 57 $5,029,400 $15,577,000 $11,573,000 0.32 $285,232 $1,156,907 $871,675 306%
CR Commercial 212 $30,013,355 $17,267,200 $47,280,555 1.74 $1,165,292 $1,282,439 $117,147 10%
CRC Commercial 1 $40,600 $119,800 $160,400 0.34 $3,953 $8,898 $4,944 125%
E Education 11 $2,592,000 $504,600 $3,096,600 5.14 $76,320 $37,477 -$38,843 -51%
EU Education - Utility 1 $26,500 $43,600 $70,100 0.61 $1,728 $3,238 $1,510 87%
F Farm 2 $78,900 $237,700 $262,200 0.33 $6,462 $17,654 $11,192 173%
FL Farm Land 3 $36,000 $181,800 $145,800 0.2 $3,593 $13,502 $9,909 276%
I Industrial 14 $16,645,107 $4,429,900 $21,075,007 3.76 $519,422 $329,010 -$190,412 -37%
IL Industrial Land 4 $300,800 $1,300,500 $1,289,700 0.23 $31,786 $96,588 $64,802 204%
MH Mobile Home 124 $2,493,000 $26,200 $2,519,200 95.15 $62,089 $1,946 -$60,143 -97%
ML Mobile Home on Land 6 $146,200 $116,700 $262,900 1.25 $6,480 $8,667 $2,188 34%
R1 Residential < 6 Acres 5,098 $372,403,300 $283,223,300 $655,493,000 1.31 $16,155,495 $21,035,057 $4,879,561 30%
R2 Residential >= 6 Acres 1,114 $77,587,300 $50,129,300 $127,716,600 1.55 $3,147,745 $3,723,114 $575,369 18%
R3 Residential 344 $29,072,700 $15,466,100 $44,538,800 1.88 $1,097,718 $1,148,671 $50,953 5%
R4 Residential 239 $22,914,800 $10,950,800 $33,865,600 2.09 $834,663 $813,318 -$21,344 -3%
RC Residential Condo 1,757 $191,790,100 $931,100 $192,721,200 205.98 $4,749,870 $69,153 -$4,680,717 -99%
RL Residential Land 199 $853,800 $12,887,100 $13,191,900 0.07 $325,132 $957,128 $631,996 194%
TE Education 29 $7,503,602 $2,905,600 $10,210,602 2.58 $251,654 $215,800 -$35,854 -14%
V1 Vacation 1 44 $1,938,400 $1,282,500 $3,220,900 1.51 $79,383 $95,252 $15,868 20%
Municipal Totals 10,060 $1,076,751,523 $528,837,000 $1,593,618,331 2.04 $39,276,840 $39,276,840 0 $0
Burlington RESULTS BY PROPERTY CLASS
LESSONS FROM THE PAST
Get zoning/set-asides in place to protect
environmental/agricultural assets
Get assessments right
Don’t implement at same time as
reassessment (Amsterdam, NY,
Pittsburgh, PA)
Implement gradually ie: over 5 years
Alaska dividend-irreversible
