Much of the literature on land-value taxation is about its theoretical basis and economic effects, but those introduced to the concept also seek to understand how it would be implemented. As I am most familiar with the governments of the USA, I will describe how I think land-value taxation (LVT) would best be implemented in the United States.
Property taxes today are handled by county governments, and for several reasons, the best implementation of LVT would be by the existing county institutions. As Henry George wrote, it is best to disturb current practice as little as possible. Also, the county level of government keeps the process close to the people, the counties being the lowest level of government that covers all the territory.
Unlike today, where the property tax is mostly kept by local government, when there is a single tax on land values, spread among all levels of government, the board of assessors should represent all the levels. Since the county is passing on a large amount of the revenues to the state, the incentive is to pass on as little as possible, and therefore to under-assess the land value. Therefore there would be a county-level board of assessors of, for example, nine members. The federal, state, and county governments would each appoint three members.
The board of assessors would appoint professional real-estate appraisers to be land-value assessors. There would be an annual value assessment for each plot of land. Each plot would be valued by two assessors, who would use recent comparable sales and rentals, rebuilding costs, and income capitalization rates, to appraise the purchase price of the site, net of transaction costs such as sales commissions, title insurance, and other closing costs. Another method would be to assess the implicit land rent, but since the practice today is to assess the purchase price, that would be the most likely method for LVT in the USA.
Another group of assessors would examine neighborhood maps to make sure the plot assessments were mutually consistent. Finally, the county board of assessors would examine the entire assessment to ensure that there is no bias in favor of excessively high or low values.
One problem that always comes up with LVT is the treatment of retired folks with low cash incomes, or a person who loses a source of income and has no savings. One solution is a market for LVT insurance. The insurance company would pay any unexpected large increase in the rent, and would also pay a portion of the LVT after a particular age, or would pay the LVT for some time duration when the insured person has a sudden loss of income. Another possibility is for the county to postpone the payment of the tax until the property is transferred, or when the value of the estate is applied to the tax owed. A third possibility is for the retired persons to move to a lower-rent neighborhood, as many anyway move to assisted living or to an apartment.
The assessments would be a public record, accessible on a web site. A title holder could protest his assessed value to an appeals board. If still not satisfied, the land owner could bring his appeal to a jury, but would have to pay the court costs, including jury payments, if he lost the case.
The county tax collector would then send monthly tax bills. For owner-occupied real estate, the bill would go to the title holder, which could be a partnership, corporation, or government. All land holders would pay the tax, including government-held lands. For properties with landlords renting to tenants, the tax bill could be sent to the tenants rather than the title holders. The title holders own the rights of land possession, rights to control the use, and to transfer title, but they do not properly own the land rent. In some commercial property, the tenant pays the property tax anyway. Thus rather than the tenant paying rent to the landlord, who then pays it to the county, it would make sense to have the tenant pay the tax directly to the county. On the other hand, where there are residents whose tenancy and payments are uncertain, the county board may decide to charge the owner of the property.
Just as with today’s income tax, the funds are typically deducted, or withheld, from the worker’s wage, land-tax payers could choose to have the amount automatically deducted from a bank account. There could be a discount to encourage this method. Late fees would apply for tardy payment, and if the tax is not paid for a number of years, the count would place a lien on the property, and eventually sell it for the payment, as is the practice today. Nobody would go to prison for the failure to pay a land-value tax.
As the LVT is distributed to several levels of government, there would have to be one supreme deciding level. That would be the federal government. Congress would decide what portion of the LVT would go to the federal government. The state governments would then decide how much of the LVT would go to the state. The county’s elected board of government would decide how much of the remainder is kept by the county. Thus the county would pass on revenue to the state, which would pass on revenue to the US Treasury. The county would then pass down a portion of revenue to the city and town governments, plus any special districts that have their own governance.
If a state government fails to pass on its share of tax revenues to the US Treasury, the federal government would have the authority to directly tax the property owners, with an extra penalty. During the War of 1812, the US government levied a national property tax, with a discount if a state collected the funds and sent it to the federal government.
Some of the LVT revenue should be distributed in money to all the residents in equal shares. The shares going to children could be in the form of education vouchers. The distribution would be done by the counties. There would then be two political pressures. The first pressure would be to decentralize government, as each level would seek to maximize the funds it receives and keeps. The second level of pressure would come from the voters to optimize government spending, since each dollar spent by government implies one less cash dollar going to a resident.
Congress would also allocate a portion of revenues that would be sent to the governments of the native Indian nations. The Indian governments would also levy a local land-value tax, so that all Indian land plots pay the full LVT. Indian lands would be assessed by the counties, but whether the county would collect taxes on Indian lands would depend on arrangements the Indian nations make with the county and state government for services such as highways and education.
While LVT as a single tax could be implemented within today’s US Constitution, it would be better to change the Constitution by replacing the 16th amendment with a new amendment that confines taxation to land values and pollution, and authorizes the taxation of implicit rent and land value. The provisions of the US Constitution that require direct taxes to be apportioned by state population would be explicitly repealed.
There are indeed some complexities with the taxation of land values, but the social cost and complexity of LVT is vastly reduced compared to the excess burdens of taxing wages, enterprise profits, interest, dividends, and goods, and the extreme complexity and cost of having multiple sources of tax revenue.
ABOUT THE AUTHOR
FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.
Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.
The Transition to Land-Value Taxation
Fred E. Foldvary
This article was originally published in
Progress, 8 November 2015 under a Creative Commons License
Opposition to land-value taxation is based on the transition, not on the long run.
A big benefit of land-value taxation is that after the transition, the typical landowner has no tax burden, because the tax replaces what would otherwise have been mortgage interest, as LVT reduces the price of land to provide a normal return on the remaining asset value. But this land-value reduction stirs up opposition to the tax shift. That raises the issue of compensation for losses and how to deal with mortgaged landowners.
First of all, compensation for the loss of land value is not morally required. The typical landowner has been receiving an implicit subsidy from the government, as public goods generate higher rent and land value. One could argue that justice requires the title holder to pay back the past subsidies. The situation is similar to that of slavery; would liberation require compensation to the slave owners? They had been unjustly taking the wages that would otherwise have been paid to the slaves. Rather than get compensated for the loss of the value of the slaves, one could argue that they should pay back the wages stolen from the slaves.
With land bought prior to the transition, but recent to it, the capitalized value of the subsidies would have been paid to the previous owner. Should all previous owners or their heirs pay compensation for their past subsidy gains? One can see that this becomes a tangled mess.
When income or sales taxes are increased, nobody talks about compensation. The reason this comes up with a land-value tax is that there is a significant change in asset value. But in reality, a higher income tax reduces an asset: the present value of the worker’s future income. The loss of value is more stark and evident with tangible property.
While compensation is not morally required, a payment for net losses would make the transition more politically feasible. The cases we can examine are 1) owner-occupied long-held debt-free land; 2) a landlord long-held debt-free land; 3) an owner-occupier holding recently bought debt-free land; 4) an owner with totally mortgaged land.
Suppose a person inherited land 50 years ago and now owns and uses it with no mortgage and no tax. The price of the land is $100,000, the interest rate is five percent, and the implicit rent is $5,000 per year. LVT is enacted at a rate of forty-five percent of the price. The price of land after the transition is $5,000/.5 = $10,000. The tax amount is $4,500. Suppose also that the landowner has a wage of $100,000 per year, taxed at 25 percent, and spent $50,000 a year on taxable goods with a sales tax of 10 percent. His annual tax bill was $25,000 + $5,000 = $30,000. The present value of a perpetual payment of $30,000 at five percent is $600,000. His gain is $600,000 and his loss is $90,000; the man is a winner, with no compensation needed. But suppose that the man had no taxable income and no taxable spending (his income was tax-free municipal bond interest, and his spending was on tax-free services and food). He would receive a compensation of $90,000 for the loss of land value and of the implicit $5,000 rent. We can see that this is a highly unusual case, and such compensation would be rare.
Now suppose the same data, but there is a landlord renting to a tenant. The landlord receives $5000 in rent income per year. This income is capitalized as the price of land at $100,000. The loss of asset value is the same, $90,000. The difference is that the $5,000 in explicit rent is income taxed, and the spending from that income is sales taxed. Suppose the total tax is $1,000. That $1,000 would be subtracted from any compensation.
The recent buyer spent $100,000 of his own money for the land. The interest he could have earned from that amount in bonds is $5,000. He now gets an implicit interest of $500 on the $10,000 remaining land value. His loss is $4,500 in implicit interest, capitalized to $90,000 asset value. So the situation is the same as in case #1.
A person borrows the entire $100,000 to pay for the land, which afterwards has a value of $10,000. He pays mortgage interest at $5,000 annually. Now he also has to pay a $4,500 land value tax. One possibility to have the lender pay the tax, but in a competitive industry, the financial institution was already making only normal profits, any interest income beyond costs going to the depositors, who would pull out if they don’t receive the prevailing interest. So the lender should not be taxed. As in case #1, the $4,500 tax payment has to be compared to the gain from untaxing the other sources of income, and compensation is made for any net loss.
Because most taxpayers, households and enterprises, would have net gains, relatively few landowners would get compensated for a net loss. And as the removal of market-hampering taxes would result in greater employment, income, and growth, over time, the government debt that paid for the one-time compensation could be paid off. There would be no more deficits, so that the governmental debt would eventually disappear.
Thus is the transition to land-value tax not a moral problem, and is financially and politically feasible.
ABOUT THE AUTHOR
FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.
Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.
The Transition Story: Time to stop talking about climate change?
Rob Hopkins
This article was originally published in
Transition Culture, 2 November 2015 REPRINTED WITH PERMISSION
Today we launch a theme exploring 'the Transition Story', our opportunity to unveil work we've been busy with over the last 12 months or so. The thought I want to seed in your brain today is whether a more skilful way to inspire a response to climate change, and a more skilful way to achieve all the things we want to achieve in the Transition movement, is to spend less time talking about the issues that drive why we do what we want to do, the problems, that challenges. Like climate change. Stay with me.
One of the things that has been generating a lot of thinking in recent months at Transition Network has been the idea of "frames". In his seminal book "Don't Think of an Elephant", George Lakoff defines frames as:
"...mental structures that shape the way we see the world. As a result, they shape the goals we seek, the plans we make, the way we act, and what counts as a good or bad outcome of our actions".
The Transition Story: from 'response' to 'movement'
We've been exploring what might be the frames for Transition, through a fascinating piece of work with Jon Alexander of the New Citizenship Project which we call 'The Transition Story'. It looks at how to tell the story of what Transition is about, at what are the most effective frames to use. It has been deeply insightful.
Alexander argues that Transition has come to the end of what he calls its 'Response' frame (which has run through all our materials to date back since the start of Transition - you know, "Transition is a response to peak oil, climate change, economic crisis, etc. etc.") and would find it more effective to focus on a 'Movement' frame. He writes:
"We believe the opportunity is to start from where people NOW are, with a shared but hazy sense of how unsustainable the dominant global culture is, and which most of us are suppressing and holding at arm’s length because it is just too big to allow into our daily lives – rather than where people WERE when Transition started, which was arguably unaware. The task is to stand side-by-side with people and ask questions with them, not in front of us with a confrontation we have already decided to run away from".
It's a rich insight, one I have been digesting for the last few weeks. He encapsulates it thus. For him, Transition would benefit from redefining itself as "a movement of communities coming together to reimagine and rebuild our world". At the moment, the flow of how we present Transition tends to run like this:
There are some huge problems out there
But don't panic
We can respond
Here's how you can be part of it
The Transition Story project shifts that, suggesting that instead the story we tell now flows like this:
A movement is building
Here are the things all the different people are doing in their communities
It’s rooted in caring for ourselves, each other and the living world
This shows a different future is possible when we come together
(Optional: This is why it’s needed)
Here’s how you can be part of it
It's worth sitting with for a while and allowing to settle in. It certainly has led to lots of rearranging of grey matter for me over the past while. It's a shift that Sarah McAdam and myself presented at a workshop at the 2015 Transition Network International Conference, a video of which we'll be posting here soon.
Over recent weeks I have given a number of talks, such as this one at the International Permaculture Conference, where I have presented, and embodied, this idea that we don't need to always start talking about Transition with a long list of reasons and graphs that show the disastrous state of the world. We start by saying that we do Transition because it's bloody fantastic, and it changes peoples' lives, and it meets our needs far better than the current economic model does. That's enough.
As Cheryl Lyon of Transition Town Peterborough puts it in '21 Stories of Transition', "we don’t want the catastrophe to do the work for us”. When I start talks in this way, it invariably generates a round of applause. We have so much to celebrate, so let's celebrate it.
But do most people "know there needs to be change"?
"All the people who are not, for whatever reason, motivated by climate change: they’re good people, they care, they’re people who do good things in their lives, but for whatever reason they are not affected deeply by these ideas of change. Most people know there needs to be change. In the work that I do, whether I’m asking about people’s car use or people’s relationship to food or energy or climate change or the weather, everybody knows. People know, but that doesn’t mean they can act. Our job is not to go out and tell people what we think, but to start from what people think and what people deeply know, and then find ways to connect that back to a bigger shared story. The truths are out there almost in the furthest places from us".
"Most people know there needs to be change". This very much resonates with what Jon Alexander wrote:
"We live in a time – and this is pretty global – when there is a broad if suppressed recognition that things cannot go on as they are. In this context, starting by pointing that out is more an unnecessary confrontation than a useful convening point".
But is he right? Is there really a "broad but suppressed recognition that things can't go on as they are?" It's a risky assumption. For example, might it be that many of those voting for UKIP in the recent UK election (some of whom we know are also active in Transition initiatives) are also driven by a deep sense that things can't go on as they are, yet the amount of fear-based rhetoric they encounter daily in the media leaves them with a sense that a fear-based response is the most appropriate one? Discuss.
Is it time to talk less about climate change?
It's a counter-intuitive question perhaps, but a vital one. Transition suggests a different frame, one based in compassion, honesty and trust. If we are able to voice that skilfully, who's to say it won't reach those currently dazzled in the glare of those more fear-based frames? Alexander's proposed move from 'Response' to 'Movement' is key to this I think, and for me represents a momentous and historic shift in how we frame Transition, certainly one that underpinned how we created '21 Stories of Transition', and how it tells its story.
By now, most people who are drawn to the issues to which Transition is a response are already on board, or at least know about it. But there are many people who would be attracted to much that Transition does, to many of its initiatives, but are put off by the associations that accompany climate change and other issues, as well as the 'alternative culture' associations that sometimes accompany some Transition groups.
People may care deeply about their community, its history, its young people, its ecology, its transport issues, the quality of the food available, the Clone Town nature of its High Street, the impacts of austerity cuts on local care services and so on, as well as about larger global issues, but not be driven by a concern about climate change or about the finite nature of many of our key resources. So how to invite them to the party?
It's already happening
This shift in how we talk about Transition is already happening in many Transition groups I talk to. Quite a few are already starting to move away from always framing their work as a 'response'. The South Wales Evening Post reported on a recent event which launched Transition Neath. It quoted one of the founders, Emma Knight, as saying "this event is about starting a community conversation about the long-term future. It is about the community taking responsibility and doing something for itself. It's a negativity free-zone - we will be focused on what can be done rather than what can't".
The Independents for Frome group, a group of independents who are revolutionising local government in Frome, several of whom have roots in Transition in the town, is another great example of their being able to be more effective by seeking the common ground. Here's their fantastic video from the recent election which gives you a good sense of what they're all about:
For a growing number of people in Transition there is a sense that we can be more impactful, have a greater relevance and reach, if we don't put agreeing to climate change and the various other drivers as an entry requirement, the "unnecessary confrontation" Alexander mentioned. This is something again that comes through very strongly in the 21 Stories we will be unveiling this month.
So next time you talk to someone about Transition, or write something about it, or give a talk, just try it out. Try losing the "what Transition is in response to" framing from the front of your talk, and just start with what you love about it, the impacts it is having, how a movement is building. Tell stories, allow your passion for the changes you have seen it making to your life, to your community, to the wider world. Those issues that you are responding to will inevitably come through in your stories. Try it out, and see how it works for you and let us know. We'd love to hear your thoughts on this article, and on our ongoing deepening into the subject over the next 2 months.
ABOUT THE AUTHOR
Rob Hopkins is the co-founder of the Transition Network, a charitable organisation whose role is to inspire, encourage, connect, support and train communities as they self-organise around the Transition model, creating initiatives that rebuild resilience and reduce CO2 emissions. He was recently awarded a PhD by the University of Plymouth and an Honorary Doctorate by the University of the West of England. In 2012 he was voted one of the Independent's top 100 environmentalists and one of ‘Britain’s 50 New Radicals’.
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