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Taxing Land Rents

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It would be difficult to recapture and restore much of the property to the public realm, A more promising solution is to collect the rent from land parcels based upon their market price, treating land not as a commodity to be owned by title in fee-simple but rather as a usufruct. Economic rent is a socially created product, there is every moral ground for its public recapture.
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1 Taxing Land Rents for Urban Livability and Sustainability H. William Batt, Ph.D., Board of Directors Henry George Foundation Center for the Study of Economics Robert Schalkenbach Foundation, New York, and International Union for Land Value Taxation, London For Presentation at The 11th Global Conference on Environmental Taxation 3 – 5 November 2010, Bangkok, THAILAND Introduction In most cities of the world today ambience and livability are plagued with two problems: traffic congestion and sprawl development. Yet public bodies seem at a loss in solving them, even though at least from a technical point of view they are demonstrably solvable. Governments have at their command two means by which to address them—two arrows in their quiver, so to speak: constitutionally known as police powers and tax powers. 1 More commonly referred to as command-and-control approaches and fiscal approaches, they are the only legitimate tools that the public has at its disposal. All this must be borne in mind when designers of government policy consider the efficacy of public programs, particularly with reference to their scope, domain, and weight. Scope involves all those matters or interests in which government concerns itself; the domain is the area or number of people over which it has exercise; and the weight, or intensity, is the degree to which a people or an area feels itself imposed upon, heavily or only lightly. If a government in some way over-extends itself, or imposes itself too much upon people, it will prove to be ineffectual, illegitimate, and have a difficult time maintaining itself. One can find instances in all governments where what limited police powers are available are squandered, and where laws are flouted or circumvented. It is even more the case for taxing powers, where estimates are that as many as half the population believes it is legitimate to cheat if they can do so. 2 This is the case in the United States; and it is higher in many other nations. Poor design of government administration has the effect of undermining the legitimacy of public authority and is costly in every sense of the word. Authors David Osborne and Ted Gabler have such concerns in mind when they exhort policy makers to employ measures that rest lightly on society, that don’t require so much “muscle,” what they call “Catalytic Government: Steering Rather than Rowing.” 3 Skillful design husbands the resources of government. What makes the challenges of public administration even more difficult is the realization that both tools are better at circumscribing, or even stifling, behavior it opposes rather than promoting it. Bear in mind that any public policies typically have costs—either in the public resources required to administer them or by reducing general welfare. Care must therefore be taken to ensure that their design should be considered and explained. Examples abound where policies, typically with commendable goals, have been implemented, but with consequences that are unanticipated and often harmful and expensive. Often too it is the symptoms of problems that are addressed rather than the underlying causes, the result being that they momentarily or provisionally supply answers but which further exacerbate situations in due course.
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  • 1Taxing Land Rents for Urban Livability and Sustainability

    H. William Batt, Ph.D., Board of DirectorsHenry George Foundation Center for the Study of Economics

    Robert Schalkenbach Foundation, New York, andInternational Union for Land Value Taxation, London

    For Presentation at The 11th Global Conference on Environmental Taxation3 5 November 2010, Bangkok, THAILAND

    IntroductionIn most cities of the world today ambience and livability are plagued with two

    problems: traffic congestion and sprawl development. Yet public bodies seem at a loss insolving them, even though at least from a technical point of view they are demonstrablysolvable. Governments have at their command two means by which to addressthemtwo arrows in their quiver, so to speak: constitutionally known as police powersand tax powers. 1 More commonly referred to as command-and-control approaches andfiscal approaches, they are the only legitimate tools that the public has at its disposal.

    All this must be borne in mind when designers of government policy consider theefficacy of public programs, particularly with reference to their scope, domain, andweight. Scope involves all those matters or interests in which government concerns itself;the domain is the area or number of people over which it has exercise; and the weight, orintensity, is the degree to which a people or an area feels itself imposed upon, heavily oronly lightly. If a government in some way over-extends itself, or imposes itself too muchupon people, it will prove to be ineffectual, illegitimate, and have a difficult timemaintaining itself. One can find instances in all governments where what limited policepowers are available are squandered, and where laws are flouted or circumvented. It iseven more the case for taxing powers, where estimates are that as many as half thepopulation believes it is legitimate to cheat if they can do so.2 This is the case in theUnited States; and it is higher in many other nations. Poor design of governmentadministration has the effect of undermining the legitimacy of public authority and iscostly in every sense of the word. Authors David Osborne and Ted Gabler have suchconcerns in mind when they exhort policy makers to employ measures that rest lightly onsociety, that dont require so much muscle, what they call Catalytic Government:Steering Rather than Rowing.3 Skillful design husbands the resources of government.

    What makes the challenges of public administration even more difficult is therealization that both tools are better at circumscribing, or even stifling, behavior itopposes rather than promoting it. Bear in mind that any public policies typically havecostseither in the public resources required to administer them or by reducing generalwelfare. Care must therefore be taken to ensure that their design should be consideredand explained. Examples abound where policies, typically with commendable goals, havebeen implemented, but with consequences that are unanticipated and often harmful andexpensive. Often too it is the symptoms of problems that are addressed rather than theunderlying causes, the result being that they momentarily or provisionally supply answersbut which further exacerbate situations in due course.

  • 2With respect to the two problems at hand, traffic congestion and sprawl, mostgovernments have failed to adequately deal with their challenges because they have takenlittle pain to fully understand their genesis and root causes. With respect to traffic, forexample, the solution has too often been to build more roads, or else to widen them. Yetit has long been understood that such policies usually foster greater traffic congestion.Among students of systems theory this has come to be known as Braesss Paradox, afterthe brilliant German mathematician who first explicated it.4 So it eventuates that mostcity thoroughfares of the world are plagued with overuse that is the direct consequence offoolish and counterproductive public policies. Other illustrations of transportationmismanagement could also be offered, but this example illustrates the point.

    With respect to the matter of the centrifugal forces of sprawl development, it ismore directly a result of economic misunderstanding. But the solutions seldom employeconomics; rather policy makers look to command-and-control approaches like zoningand urban growth boundaries (UGBs). The earliest UGB was instituted decades ago inPortland, Oregon, advocated mostly by farmers whose land was threatened by thegrowing incursion of housing sprawl.5 A girdle of protected greenspace was drawnaround the citys perimeter, intended to prevent development in identified areas andpresumably beyond it as well. In time, however, development leapfrogged the UGB andled to more commuter traffic and congestion beyond the girdle. Those property ownersinside the perimeter were overjoyed with the arrangement because the scarcity enhancedtheir site values. Since locational values are a function of access and are reflected incapitalized transportation costs people had the choice either of paying more in site rentfor the privilege of location or else in travel costs from areas with more modest costs.

    Ultimately the disequilibrium pressures of the site values inside and outside theUGB became so disparate that the system burst. Political forces reached a point whereinthe disparities could not be maintained and the UGB could not hold. Other cities havealso attempted to delimit their suburban growth but have in one way or another facedsimilar problems. Californias Bay Area outlined a growth boundary demarcated so farfrom urban cores that the projected infill would take a century. Political resistance madeit impossible to impose it closer in where it would have greater bite. It encompasses anarea larger than that of the US states of Connecticut and Rhode Island combined! So it isa meaningless pretense. Melbourne, Australia, has just reported a similar failure to curtailsprawl development, having relied upon a UGB pattern that has now been shown to haveencouraged land speculation.6

    Each of these examples reflects poorly conceived public policies, in the firstinstance an attempt to invest in greater infrastructure and essentially buy a way out ofthe problem, and in the second case a misuse of a police-power-based command-and-control approach that simply postponed and amplified the problem. A better sense ofeconomics, especially land economics, could have successfully addressed the challenge.Proper use of constitutionally permitted tax powers, or fiscal approaches, can not onlycorrect the distortions that result from market disequilibriums; they can also raise revenuefor the support of public services and obviate reliance upon revenue streams that havemore negative impact and downside consequences. In exploring the problems at hand, thebest solutions are in institution of a variant of the conventional property tax, what is mostcommonly known as land value taxation.

  • 3A Better Solution is a Tax on Land Values AloneThe conventional real property tax as known in most English-speaking countries is

    really two separate taxes from an economic point of view: a tax on land values and a taxon improvement values. Each has very different dynamics and each influences behaviorin a different way. Any tax on improvements, essentially buildings, penalizes upkeep andconstruction initiatives. Titleholders maintaining and improving property to the fullextent that sites warrant are penalized with a higher tax. Owners that let property go towrack and ruin are rewarded with lower assessments and hence lower taxes. Just astaxing wages discourages work, as taxing interest discourages savings, and taxing salesdiscourages consumption, taxing improvements to real estate rewards the wrongbehavior. There are long histories of tax folly from the time trees were taxed effectingdeserts, when taxing windows led to darkness, and taxing lot frontage led to outlandishshotgun houses in the old American West.

    On the other hand, the tax on the assessed value of the land component of a parcelencourages investment and development. The higher the tax the more the owner isencouraged to build on the site so as to recover his carrying costs. Heavier taxing ofunderused and vacant parcels generates improvements, especially in high value urbancores.7 This development then fosters the necessary density to make localities walkableand less vehicle dependent. What vehicles then service the areas tend to be public transit.The tax on land values and the tax on improvement values are like a train with an engineon each end: they work in opposite ways and negate what powerfully beneficial effects atax on land value alone has.

    Since the primary concern of this conference is environmental policy and the useto which revenue streams can be put to accomplish sound environmental goals, I willreturn to this line of thought shortly. It is important, however, to recognize that a tax onland values comports perfectly with all the principles of sound tax theory. Among themare efficiency, neutrality, equity, administrability, stability, and simplicity. An ideal tax isneutral and efficient with respect to markets and progressive in so far as those who havefewer resources will pay less. A soundly based land tax is also easily administered,simple to understand, and provides a stable and reliable revenue stream. It is certain inthe face of any attempts at evasion. One cant escape a land tax by taking it to the Isle ofMan or the Cayman Islands. Many students hold the view that all taxes have downsideattributes so that any revenue system must necessarily make compromises and trade-offs.This claim is very much open to challenge. It is important here only to emphasize thattaxes impact behavior in ways that go far beyond their purposes of supporting publicservices. To this extent, their architecture needs to be carefully designed and understood.8

    Tax principles as enumerated above have been recognized in various ways sincefirst set forth by Adam Smith.9 But in recent years there are considerations above andbeyond those relevant to revenue design itself. Environmental concerns are equallyimportant, particularly as they address land use configurations. Taxing land parcelsaccording to their market value fosters land use patterns that best suit the demands of thecommunity as a whole. Those sites that reflect where people want to be command thehighest land values; those sites that are of marginal use or concern from a pricingperspective are taxed less and reflect less pressure to improve. Business and commercialparcels tend to cluster in high value areas, residential parcels develop at the edges, andagricultural and forest property is relieved of pressure to develop and consume land.

  • 4Taxation of Natural Resource RentsThe market value of land parcels reflects what classical economists called rent,

    also called ground rent or economic rent. Although originally thought of as applying tothe productivity of farmland, rent is today identified far more with urban space. This is adifferent meaning of the word rent than when paying someone for the use of someproperty, whether for things like tools or for real estate purposes. Land rent is a flow ofvalue through any natural resources that command a market price on account of theirdemand. Classically, rent is the market price any such commodity beyond what is neededto bring that factor into use. It applies as much to air or water or mineral and petroleumresources as it does to locations. Any items that have a market price not created byhuman hands or minds can have rental valueeven airport timeslots, electronic signals,and satellite orbits. Because their value results not from any human efforts, resource rentscan be understood as socially created wealth; they are the mutual result of commonenterprise and such rents flow through property more than they are generated by it.

    Site rent can also be construed as capitalized transportation costs.10 Sites withhigh market value are easily accessible; by whatever mobility means are at hand. Landsites reflect all such coststhose borne by individual members of society as well as thoseborne collectively. Site rents and transportation costs in a metropolitan area areessentially reciprocal: parcels in urban cores have high access and rental value whereasparcels in remote areas have high transportation costs and low rental value. One way oranother the people have to pay for access to market exchanges, whatever sort or stylethey have: one pays either for the privilege of occupying a location or for the cost ofgetting there.11 But since transportation costs reflect the use of materials and energy, itmakes sense that they be efficiently consumed, important for a well-designed locality.

    German economic geographer Heinrich von Thunen worked out this theoryalmost two centuries ago.12 He calculated the costs of bringing farm goods to market andas they related to the most suitable distance from the market on which to grow them. Thereciprocal of this was his understanding the value of the market sites themselves. Heappreciated that locations in urban cores had site prices many times those in agriculturalareas.13 He further understood the relationship between site rents and access. When vonThunen lived there was little use of fossil fuels for transportation purposes; he died beforethe carbon age was fully upon us and before transportation costs became for the momentalmost inconsequential. We live today in a time of temporary luxury when it comes toenergy consumption, an age which most believe will soon pass.14 Given how intractableland use configurations are once set in place, societies are foolish to develop apermanence that make them far less livable once the petroleum age largely passes.

  • 5Returning once more to the matter of the flow of ground rents through locations,one needs to understand that if the public does not recapture the socially created rent it iscapitalized in lump-sum market prices. For titleholders to such sites this constituteswindfall gains, what John Stuart Mill called an unearned increment. This is surpluswealth reflecting social productivity that becomes effectively frozen and unavailable asresource capital. It is a leaden drag on economic enterprise so long as this wealth is notput back in circulation. Moreover, if this flow of ground rent is not taxed and restored tothe economy, the public then is forced to rely on other taxes that have more downsideimpacts. As earlier noted taxes on wages and goods discourage economic vitality, distortmarket choices, and are administratively expensive to collect and enforce. Lastly, whenentrepreneurs or households make real estate investments they are usually forced to payartificially inflated prices for locations where value is fed by speculative practices.Members of society pay twice as a result, first for real estate investment loans and thenagain in taxes to support public services. The only winners are speculators and bankers.

  • 6Illustration of Salt Lake Citys Very Good Land Value Assessments, 1969

    Source: Claron E Nelson, This is a Community: Salt Lake City, Univ. Utah Press, 1971.

    It needs to be emphasized once more that when land sites are artificially inflatedin price by speculators keeping them off the market waiting for a gain, those who wouldelect to use those sites if they were available are forced to choose second-best and sub-optimal locations instead. Rather than market-clearing efficiencies assuring the rationaldevelopment of social spaces, one finds leapfrog and haphazard unfolding settlement. Allthis adds to extra costs in infrastructureroads, utility services, public amenities andcommunity servicesthat are also less than optimal in their provision. Spatialarrangements thereby impose their social costs several times over, all of which lead tocommunity well being that is far below what could be optimally obtained. Its costs arereflected especially in the consumption and waste of natural resources and human effort.

    Chances for private capture the socially created rental value of land arose onlyduring the past four centuries of the great land rush. From roughly 1650 on naturalresources that earlier were regarded as part of the public commons were turned into amarketable commodity and privatized for selfish gain.15 Although it has been bestchronicled in the history of the Americas, this was a worldwide phenomenon. Moreoverit was rationalized and justified in numerous arguments and judicial decisions.16 Theworld is only now beginning to appreciate the implications of this rush to privatization.The loss of natural resources consequent upon treating them either as free goods orcommodities captured by whatever parties have secured legal titles has resulted in theimpoverishment of everyone, and even jeopardizes the sustainability of the earth.17

    We are now far down the road to privatization of the common natural resources ofthe earth, a process that has been traced to what is known as the enclosure movementfirst initiated in the early Tudor era of English history.18 It is difficult now to recapture

  • 7and restore much of this property to the public realm, A more promising solution is tocollect the rent from land parcels based upon their market price, treating land not as acommodity to be owned by title in fee-simple but rather as a usufruct. As earlierexplained, since economic rent is a socially created product, there is every moral groundfor its public recapture.19 This policy not only encourages the economy to perform farmore efficiently, it also restores a sound moral basis to the economy and offers a cleartheory of distributive justice. That which is rightfully the publics is returned to thepublic; that which is created by ones own mind or body is ones own to possess. Thecommons and the private realms are restored to a comprehensible moral framework.

    The concept of usufruct ownership, in contrast to fee-simple title, is a term thatneeds to be restored to contemporary discourse.20 It constitutes the legal right to use andbenefit from property, typically natural resource property, that other persons, institutions,or the general public have formal title to, at least so long as the property is not damagedor degraded. The English word usufruct derives from the Latin expression usus et fructus,meaning "use and enjoyment," cognate to English "use and fruits." The concept ofusufruct goes back to ancient times, and has been far more evident in societies of theworld than the notion that elements of nature can be owned as commodities. Just as theterms usufruct and fee-simple are typically opposites, so are the terms leasehold andfreehold. Thomas Jefferson wrote, citing John Locke, that "the land belongs in usufruct tothe living,"21 a quote that Henry George often repeated, as in his noted speech, TheCrime of Poverty. George also held that private capture of that which was God-givenconstituted theft, pure and simple: Thou Shalt Not Steal! he told the Anti-PovertySociety of New York in 1887.22 Native American people put the same principledifferently: we do not inherit the earth from our ancestors; we borrow it from ourchildren. Even in American society where private property in land and nature is asacrosanct hallmark of capitalism, the law doesnt talk about it in such terms. Rather ittalks about property ownership as a bundle of rights.23

    Prior to the enclosure movement and the advent of "the great land grab" and itsprivatization, the use of land was typically paid for in various forms of rent. Once cantrace the origins of such payments to earliest times and show that such practices werealmost universal prior to the modern era. Payments were made to society, or to nobilityacting in its name, in rent whether it be in the form of tribute goods, labor, or in yieldsfrom the land itself.24 Fee simple ownership of land in any form was unique to the rise ofWestern civilization and its spread. One could argue from an economic perspective thatthe leasehold arrangements that characterized classic civilizations were equal to or betterequilibrated than are the tax regimes employed in nations today.

    Land Rent in a Modern EconomyThere is growing appreciation among some economists, urbanologists, tax

    theorists, and land use planners that the disregard or trivialization of land as a factor ofproduction has had profound consequences for many aspects of social and economicevolution. Failure to recognize the significance of the flow of rents from land and othernatural resources has led to distortions in many realms of society and their economies. Itwas possible to overlook this distortion so long as there lacked the means by which toidentify and quantify it; rent was posited and discussed largely in economic theory, andwhat tools were available to identify and quantify it were for the most part derivative and

  • 8inferential. Computer power and the availability of quantifiable data now offer greateropportunity to redress this failing, and evidence of its existence and impact mounts.

    One first needs to ask how much rent is there in a modern nations economy. Is ita significant enough surplus that taxing it to support government would be adequate?With all the advantages to be had by financing government from the taxing of rents, andremoving rent from the markets, how much of a productivity surplus does it constitute?Estimates are difficult, because even with the advent of computers and data mainstreameconomists have not pressed governments for the financial data compilation that wouldallow us to adequately measure it. The US National Income and Product Accounts putsthe figure at roughly 1 or 2 percent of GDP, a figure that we know is ridiculous.25 Evenback-of-the envelope calculations suggest that it is many times this. If taxes on labor andcapital goods could be supplanted by taxes on rents, economic performance would besubstantially improved.

    Capturing socially created resource rents ultimately restores to liquidity elementsof the economy that are otherwise frozen capital; this can improve market efficiency.We know also that absent taxes on labor and goods the amount of rent would be muchgreater: after all their shifts through the economy, all taxes ultimately come out of rent.This is an axiom that has come to be known by the acronym ATCOR.26 Sometimes it isexplained it a bit differently, in one case by the acronym ATAAER: All taxes are at theexpense of rent. Put still another way, total rent is that remaining net of taxes. Movingbeyond contemporary attempts at its identification, one finds ample references countingrent payments in other societies and times. Historically rent payments were usually aproportion of a farmers yield or a specified number of days of corve labor. Based onpractices of the period, classical economic theory took largely as a given that rent surplusconstituted about a third of a societys economy.27 An old English nursery rhyme reflectsthis common practice in feudal arrangements:

    Bah, Bah black Sheep, Have you any Wool? Yes Sir, Yes Sir, Three Bags full.One for my Master, One for my Dame, One for the little Boy That lives down thelane.28

    One quick study, based on the potential of a full land tax but excluding the rentsfrom pollution rights, the spectrum, landing slots, corporate charters, internet addresses,and other sources, suggests that this rent alone amounts to about 28 percent of GDP,29and a far more detailed and sophisticated study of the total land rent in Australiaestimates that the total is well above thirty percent of GDP. It concluded that the bottomline reinforces the overall conclusion that land-based tax revenues are indeedsufficient to allow total abolition of company and personal income tax.30 A fullenumeration of sites where additional rents situate would take enormous work, butMason Gaffney has suggested fifteen major sources as a start, all of which by theirprivate capture now reduce economic productivity.31 When all is said and done, hesuggests that The Hidden Taxable Capacity of Land [is] Enough and to Spare insupporting government and supplanting all present taxes.32 This is a significant finding,because we know from various studies how much the deadweight loss from the currenttaxes is. Harvard economist Martin Feldstein estimated that the burden from the incometax alone is more than 30 percent of the yield, and about 50 percent if social security

  • 9taxes are added.33 The sales tax is in all likelihood just as inefficient.34 Looked at anotherway, substantial proof has now been developed to show, as George himself originallyargued,35 that

    In every civilized country, even the newest, the value of the land [i.e. the amountof taxable rent] taken as a whole is sufficient to bear the entire expenses ofgovernment. In the better-developed countries it is much more than sufficient.Hence it will not be enough merely to place all taxes upon the value of land. Itwill be necessary, where rent exceeds the present government revenues,commensurately to increase the amount demanded in taxation, and to continuethis increase as society progresses and rent advances.

    In the past thirty years, economists of major stature have demonstrated thevalidity of what claim has come to be called the Henry George Theorem.36 GilbertTucker, a self-taught student of Henry George, foretold the case decades earlier in a shortbook titled The Self-Supporting City. In it, he boldly begins by arguing,

    Municipal taxation as now levied can and should be a thing of the past: theAmerican city can be a self-supporting corporation, meeting its expenses from itsrightful income. Taxation is unnecessary, because the city has, in its physicalproperties, acquired through the years, by the expenditure of its peoples moneys,a huge capital investment from which it collects only a very small part of thereturn earned.37

    The virtue of taxing rent is that it captures unearned income that is otherwisewindfall gains to households and businesses. It is typically the wealthier elements of thepopulation that have title to property resources, so that to them the capture of untaxed butsocially-created rent constitutes a free lunch.38 The component of the population thatowns no land of any sort, typically the poorest elements of society, pay no rent taxes atall for the reason that resource rents, coming from sources with inelastic supply, cannotbe passed forward. This makes the taxation of land rents highly progressive, besides theirpossessing all the other attributes of a sound tax structure.39

    Most of the literature exploring the nature and sources of economic rent tends tofocus on what flows through surface locations of the earth, what is known as ground rentor land rent. Very little attention has been given to rent sources from other elements ofnature, since ground rent now seems to be the largest single component. But a significantadditional source of resource rent is generated from minerals and fossil fuel extraction.Consider also the wealth of the worlds oceans, mostly used today as a source of fish. Theelectromagnetic spectrum, the frequencies on which radio, television, mobile phone andother signals travel in todays world, all yield economic rents. And especially now, the airsink itself must be recognized for its rental value to the extent that it is used for pollutionemissions, and to the extent that it is capable of absorbing them.40 The air, after all isrightfully the birthright of all humanity, and its sale to polluters to use as a dump is thepenultimate travesty in the privatization of the commons.

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    Source: Land Values Research Group, Australia http://www.lvrg.org.au/

    A Technical Detail: Assessing Price and ValueAn objection is often raised concerning the ability of assessors to assign a value to

    the base of any resource that might be targeted for its taxable rent. For those resourcesthat are fungible, their value can be auctioned off on a regular and periodic basis. Thisapplies to mining sites, fishing grounds, petroleum fields, spectrum frequencies, and airpollution sinks. As to land parcel values, especially since cities are where most of theland value lies, concern is often expressed that one cannot know with confidence howmuch of an improved parcel is land value and how much value lies in the improvement.This is because land parcels are much less fungible and because sales are far lessfrequent. Fortunately, computer technology is quickly overcoming this obstacle, eventhough many assessors have always held the view that the valuing land sites is far easierthan valuing buildings.41

    Much of the earlier difficulty seems to be explained by the inertia of the economicsto taxation approaches and to the fact that sales records contain the price of land andimprovements totaled together. Since improved parcels are sold far more frequently thanunimproved land parcels, these have become the benchmark of valuation quality.Residential parcels change ownership frequently, as often as once every five years,whereas industrial, commercial, and agricultural parcels tend to have very stableownership. Therefore the standard of valuation for non-residential parcels is far morerelaxed. The official Handbook of The International Association of Assessing Officers(IAAO) states that "the chief measure of uniformity [in aggregate analysis] is thecoefficient of dispersion (COD), which, depending on the nature of the propertiesinvolved, should not exceed 10.0-15.0 for residential properties, 15.0-20.0 forcommercial properties, and 20.0 for vacant [i.e., rural] land.42 The limitations of this

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    eyeball method have left property owners believing that property taxation is based onsubjective judgments and is therefore questionably equitable. In contrast, triangulationalgorithms being developed for computer applications, especially when coupled withavailable aggregate sales data and regression calculations, now allow a higher degree ofconfidence in the assignment of bills for land use than other tax regimes are able to claim.

    1 There are also, of course, war powers, peripheral to domestic policies and notconsidered further here.2 Donald Bartlett and James Steele, The Great American Tax Dodge. Boston: Little,Brown & Co., 2000.3 David Osborne and Ted Gabler, Reinventing Government. New York: Addison Wesley,1993.4 R. Steinberg and W.I. Zangwill. The Prevalence of Braess's Paradox. TransportationScience, Vol. 17 (1983), no. 3, 301318.5 H. William Batt, Stemming Sprawl: The Fiscal Approach, Chapter 10 from the book,Suburban Sprawl: Culture, Theory, and Politics, edited by Matthew J. Lindstrom andHugh Bartling; Rowman & Littlefield Publishers, Inc., 2003; andwww.cooperativeindividualism.org/batt-h-william_stemming_sprawl.html.6 Simon Johanson, Land Prices Shatter Mortgage Belt Dreams, The Age (TheAge.com.au), December 6, 2010.7 In 1995, Nicolaus Tideman and Florenz Plassmann studied Pennsylvania cities usingsuch a tax. It concluded: The results say that in all four categories of construction, anincrease in the effective tax differential [between land and buildings] (1) is associatedwith an increase in the average value per permit. (2) In the case of residential housing, a1% increase in the effective tax differential is associated with a 12% increase in theaverage value per unit. From the perspective of economic theory, it is not at allsurprising that when taxes are taken off of buildings, people build more valuablebuildings. But it is nice to see the numbers. See A Markov Chain Monte Carlo Analysisof the Effect of Two-Rate Property Taxes on Construction. Journal of UrbanEconomics, 47(2), 2000, 216-47.8 See http://www.progress.org/cg/battprincip02.htm. See also infra, H. William Batt,The Fallacy of the Three-Legged Stool Metaphor State Tax Notes, 35(6), 2005, 377-381 http://www.cooperativeindividualism.org/batt_on-tax-policy.html9 In The Wealth of Nations, Book V, Ch 2, Part 2, he concluded, Ground-rents and theordinary rent of land are the species of revenue which can best bear to have a peculiartax imposed on them."10 H. William Batt, Modeling Land Rent and Transportation Costs in the United States,in Janet Milne, et.al, (eds.), Critical Issues in Environmental Taxation: International andComparative Perspectives: Volume 1. London: Richmond Law & Tax, Ltd.,2003;London: Oxford University Press, 2008.11 To be sure, individuals and organizations seldom experience all these costs becausemany of them are socialized. One study showed that the average motor vehicle owneronly pays 10 percent of the true costs of his driving. Peter Miller and John Moffet, ThePrice of Mobility: Uncovering the Hidden Costs of Transportation (Washington, D.C.:

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    Natural Resources Defense Council, 1993). James J. MacKenzie et al., The Going Rate:What It Realty Costs to Drive (Washington, D.C.: World Resources Institute, 1992).12 Thnen, Johann Heinrich von. (1826). The Isolated State. Oxford: Pergammon Press(1966).13 Research on land value gradients today is very sophisticated, even though it hasunfortunately not been joined as often with research on the rental value of land sites.However, see Colwell, Peter F. and Munneke, Henry J., Directional Land ValueGradients (January 15, 2009). Journal of Real Estate Finance and Economics, 39(1),2009. Available at SSRN: http://ssrn.com/abstract=1328422); Anandamayee Majumdar,et al., Gradients in Spatial Response Surfaces with Application to Urban Land Values,Journal of Business & Economic Statistics, 24(1), 2006, 77-90; Anandamayee Majumdar,et al., Gradients in Spatial Response Surfaces with Application to Land ValueGradients, Jeremy Atack and Robert A. Margo, Location, Location, Location! ThePrice Gradient for Vacant Urban Land: New York, 1835 to 1900, The Journal of RealEstate Finance and Economics, 16(2), 151-172, DOI: 10.1023/A:1007703701062.14 See, for example, the writings of Richard Heinberg, The Partys Over, Power Down,The Post Carbon Reader, and Peak Everything, all from New Society Publishers, andhttp://www.hubbertpeak.com/.15 Alfred N. Chandlers Land Title Origins: A Take of Force and Fraud, SchalkenbachFoundation, 1945; and John C. Weaver, The Great Land Rush and the Making of theModern World, 1650-1900. Montreal: McGill-Queens University Press, 2003 amongmany others.16 The legitimacy of titles to real property has recently been described and explored inwhat is commonly called the Doctrine of Discovery. See Robert J. Miller, NativeAmerica, Discovered and Conquered: Thomas Jefferson, Lewis & Clark, and ManifestDestiny. Westport, CT: Praeger, 2006. Stated another way, its Finders, Keepers. Myreview, including enumeration of the Doctrine of Discovery, is online athttp://www.cooperativeindividualism.org/batt-h-william_review-of-native-america.html.17 Herman Daly and Joshua Farley, Ecological Economics: Principles and Applications.Washington, DC: Island Press, 2003; and Michael Common and Sigrid Stagl, EcologicalEconomics: An Introduction. New York: Cambridge University Press, 2005.17 Several books have been written in the past decade on the fallacies of the neoclassicaleconomic paradigm. The most trenchant criticism originally came from NicholasGeorgescu-Roegen, The Entropy Law and the Economic Process. Cambridge: HarvardUniversity Press, 1971, followed by Herman Daly, Steady-State Economics. Washington,DC: Island Press, 1991, and Herman Daly, Beyond Growth: The Economics ofSustainable Development. Boston: Beacon Press, 1996.18 Karl Polanyi, The Great Transformation: The Political and Economic Origins of OurTime. New York: Reinhart & Co., 1944, and Beacon Press, 1957.19 By the same token, public capture of the product of ones labor or of the labor itself ismore ethically questionable. In the case of ones labor and the products of ones labor,the wealth is earned fair and square. In the case of privately captured wealth fromeconomic rent, one is hard-put to justify it at all. John Stuart Mill, an early proponent ofpublic capture of rents, argued that landlords grow richer in their sleep without working,risking or economizing. The increase in the value of land, arising as it does from the

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    efforts of an entire community, should belong to the community and not to the individualwho might hold title. John Stuart Mill, Principles of Political Economy, Bk. 5, chap. 2,sec. 5. Supportive quotes similar to this are easily found for Blackstone, Jefferson, Paine,and many other leading figures of the 18th and 19th centuries. It was Henry George, thelast great moral integrator and defender of classical economic theory that articulated thisposition most lucidly in his monumental 1879 work, Progress and Poverty: An InquiryInto The Cause of Industrial Depressions and of Increase of Want with Increase ofWealth The Remedy. New York: Robert Schalkenbach Foundation.20 A collection of quotations and uses are found athttp://www.wealthandwant.com/themes/Usufruct.html21 Jefferson letter to James Madison, Paris, Sep. 6, 1789.22 Henry George, Thou Shalt Not Steal, an Address delivered on 8 May 1887 to theAnti-Poverty Society, New York City. Henry George argued that seizing private titles toland, and by extension any elements of nature, was essentially theft, and was the moralequivalent to owning slaves. Seehttp://www.wealthandwant.com/HG/George_TSNS.html23 See, for example, Barrons Educational Series: Dictionary of Real Estate Terms, SixthEdition, Jack P. Friedman, et al. (editors). 2004; also at www.answers.com .24 See especially, Gerhard Lenski, Power and Privilege: A Theory of Social Stratification.New York: McGraw Hill, 1966, especially Ch 9, and Frank A. Fetter, Rent,Encyclopedia of Social Sciences. New York: MacMillan (First Edition 1934), VolumeXIII, pp 289-292.25 The US data doesnt include capital gains from rent or imputed rent from owner-occupied homes.26 For several further discussions of ATCOR, seehttp://www.wealthandwant.com/themes/ATCOR.html .27 See Marc Bloch, French Rural History: An Essay on Its Basic Characteristics.(Berkeley: University of California Press, 1966, 1970) p. 72; H.S. Bennett, Life on theEnglish Manor: A Study of Peasant Conditions, 1150-1400. (Cambridge: CambridgeUniversity Press, 1937, 1971). Ch V: Rents and Services, pp. 97-125, passim; and PaulBairoch. Cities and Economic Development: From the Dawn of History to the Present.(Chicago: University of Chicago Press, 1991), p. 283. Gerhard Lenski (op.cit, p. 226)notes, however, that the Chinese Gentry was able at times to collect as much as 40-50percent of the land yield as rent.28 This rhyme is traceable to France as well, as far back as the 17th century. See Wikipediaand other sites.29 Steven Cord, How Much Revenue Would a Full Land Value Tax Yield?, AmericanJournal of Economics and Sociology, 44(3), 1985.30 Terry Dwyer, The Taxable Capacity of Australian Land and Resources, AustralianTax Forum, January, 2003. Governments in developed societies usually comprise fromabout 25 to 30 percent of GDP. It is difficult to generalize because many functions thatare privatized in one nation are public in another. Seehttp://carriedaway.blogs.com/carried_away/2003/10/us_government_s.html . The USCongressional Budget Office calculates that Federal Government Outlays from 1962 to2001 range from roughly18 to 20 percent. See

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    http://carriedaway.blogs.com/carried_away/2003/10/us_government_s.html State andlocal governments constitute the remainder.31 Mason Gaffney, Sounding the Revenue Potential of Land: Fifteen SubmergedElements, Groundswell, September-October, 2004, andhttp://www.progress.org/cg/gaff1004.htm32 Mason Gaffney, The Hidden Taxable Capacity of Land: Enough and to Spare,International Journal of Social Economics, Vol. 36, No.4 (2009), pp.. 328-411.33 Martin Feldstein, "Tax Avoidance and the Deadweight Loss of Income Taxes," Reviewof Economics and Statistics (November, 1999). Abridged:www.cooperativeindividualism.org/feldstein_martin_deadweight_loss.html34 This is suggested by another study of Australia, where the data is much more accessibleand accurate. See W. Erwin Diewert and Denis A. Lawrence, The Deadweight Costs ofCapital Taxation in Australia, Paper presented to Treasury Seminar Series, Canberra, 19December 1997, available online www.dp9801.pdf .35 George. Progress and Poverty.36 Especially notable are Nobel Laureates William Vickrey and Joseph Stiglitz. Prof.Stiglitz most recent paper is Principles and Guidelines for Deficit Reduction, RooseveltInstitute December, 2, 2010. http://www.rooseveltinstitute.org/people/fellows/joseph-stiglitz For a more complete list and discussion of this argument, including an account byGilbert Tucker who anticipated all this, see his The Self-Supporting City. New York:Robert Schalkenbach Foundation, 1946, 1958, and 2010 with an afterward by this writer.37 Tucker, The Self-Supporting City. p. 1.38 This belies the declaration by neoclassical economist Milton Friedman that there isThere is No Such Thing as a Free Lunch. New York: Open Court Publishing, 1977.Noted earlier was the observation by John Stuart Mill that landlords grow richer in theirsleep.39 Numerous materials are available to attest to this. Among the most accessible websites,with links to many others, are www.cgocouncil.org, www.theIU.org,www.Schalkenbach.org, www.urbantools.org, www.labourland.org,www.cooperativeindividualism.org/, www.earthrights.net, www.prosper.org.au .40 See Paul Collier, The Plundered Planet: Why We Must and How We Can ManageNature for Global Posterity. New York: Oxford University Press. 2010; Gaffney,Fifteen Submerged Elements, op.cit, and http://www.progress.org/cg/gaff1004.htm andGaffney, Hidden Taxable Capacity, op cit.41 See, for example, Ted Gwartney, Estimating Land Values,http://www.henrygeorge.org/ted.htm ; Michael Hudson, The Lies of the Land: How andWhy Land Gets Undervalued, http://www.wealthandwant.com/docs/Hudson_Lies.html ;Max J. Derbes, Jr. The Appraisal of Land. Chicora, PA: Mechling Press, 2005, and H.William Batt, Land Value Maps are Not New, But Their Utility Needs to be Re-Discovered. International Journal of Transdisciplinary Research, 4(1), 2009, 108-158.42 Joseph K. Eckert, et al, Property Appraisal and Assessment Administration, Chicago:IAAO, 1990, 547.


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