If variety is the spice of life, then why are so many of us drawn to old habits? You might think of this phrase in the
context of your Friday night plans, but economists are asking it about our approach to public policy. Despite a growing body of research indicating that the structure of U.S. property taxes
could be vastly improved, we tend to be content with the status quo, and it hasn’t always been clear why. But now, using experimental economics, a
professor at the University of Delaware is undertaking a one-year study to identify why people don't respond to smarter economic
policy that could greatly enhance their lives. Joshua
Duke, Professor of Applied Economics at the University of Delaware, sees a big problem with how cities and municipalities in the United States tax
property. Governments levy taxes according to the value of buildings and productive activities on the land instead of the land value itself. While
property tax is by far one of the best taxes, especially over wage and sales taxes, it is still not as good as a land value tax. A land value tax is
virtually the same as a property tax except that the tax is on the land value only, not the building. Property taxes have been structured this way for
centuries, but Duke believes we could implement an alternative tax structure that raises tax revenue and stimulates economic development. This would run in contrast to the existing tax structure, which tends to
generate and exacerbate wealth inequality by taxing regular people for
working and exchanging, but fails to tax unearned income like that from passively owning an ever appreciating vacant urban lot. Duke’s interest lies primarily in land value taxation, a theory popularized by 19th century economist Henry George
in which taxes are determined by the inherent value of land rather than what sits on it. “The idea is that if you’re going to tax
anything in society, probably the best thing to tax is the value of land. Not the value of the improvements on land, like a house, just the value of
land, and the reason is that it’s non-distortionary**. That means that it doesn’t provide the incentive to do less property improvement
than is optimal,” Duke said. |
Duke is not the only
economist to advocate for land value taxation. Professor Joseph Stiglitz, Nobel Laureate in
Economics and author of ‘The Price of Inequality’ is one such prominent proponent of a land value tax. Stiglitz considers rent-seeking behavior, like the privatization of land values, to be the primary
element that generates inequality of wealth. Other economists, like Mason Gaffney, Fred Foldvary, Nic Tideman and Fred Harrison also support implementation of land value taxation. According to Duke, it “really would make society a
lot better. It’s one of these major things we could do. We don’t have to create anything, we can just change the way things are taxed and
increase society’s wealth,” Duke said. Determined to understand why land value taxation is so rarely used, Duke is harnessing the power of experimental economics. He is constructing a virtual city, in which land value
taxation is financially advantageous to all citizens. The citizenry will be composed of 100 students of business, economics, and engineering.
Ultimately, Duke hopes to identify why people, given the option of introducing financially advantageous land value taxation, tend to reject this tax
structure. “Economics is
all about simplifying reality. What we’re trying to do is reduce problems to the fundamental incentives that we want to study. You have an
amount of income; how much of your income do you devote to improving your land and how much do you devote to consumption? Then do you feel that, over
time, you’re being treated fairly by the tax system and do you vote to reject it? So we set up a little democracy using our computer program
where participants in our experimental economics platform can vote,” Duke said. Duke is already planning his next study. After the completion of this one-year project, he will use his
findings to identify ways to help citizens overcome political objections to land value taxation initiatives. Ultimately, he
hopes to aid economists and policy experts who are eager to see cities and
municipalities usher in smarter economic policy. **Distortion, in the most basic sense of the word, simply means change.
In economics, it is almost always considered a harmful mutation to an idealized market, where there is perfect competition and no externalities.
Almost all taxes are considered mutagenic vis a vis reducing productive incentives, misallocating resources,
etc. Just as breaking up inefficient monopolies encourages
competition and benefits the market, land value taxation encourages competition and captures distortionary externalities. This encourages behavior
that is good for markets and for people, which is what Duke means when he says that land value taxation is “non-distortionary.” In fact,
shifting to land value taxation actually increases productive incentives, what we might call a positive distortion. See the "Meme of the Week"
below.
Read more. |
BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th in Oakland,
California. Keynote speaker Chuck Marohn presented his experiences as an engineer, city planner, and founder of the non-profit Strong Towns to explore
the problems with large, specialized systems of government, and the case for localization. In a world where city
planners and engineers must work within a narrow vision on the same sorts of projects, Marohn says there is a disconnect that only leaves space for
endless repairs and fix-ups, and very little room for real creative thinking or new technology. With many cities struggling financially or going
broke, Marohn makes a case for innovation that not only can increase the productivity and self-sufficiency of a town, but can improve the lives of all
who live there. Read more and watch the talk. |
To start discussing Land Value Tax (LVT), and other
ways of making a difference in the world, join our
discussion group on Facebook. Here, you can ask questions about Earth Sharing, LVT, ending poverty, and protecting the environment. You will be
able to talk with professors and regular people in the larger Earth Sharing community. It is also a gateway to other discussion groups, a market place
of ideas for making the world a better place. |
New Books!Robert Schalkenbach Foundation recently releasted two exciting books: Rent Unmasked and the The
Annotated Works of Henry George: Volume One. They are both available for purchase on the Schalkenbach website
(links below). |
Rent
Unmasked
Mason
Gaffney Festschrift
“Rent Unmasked” honors Mason Gaffney for the quality of his lifetime’s work and
dramatizes the way his economic insights would resolve contemporary economic and political concerns.
The book includes fifteen new
essays on How to Save the Global Economy and Build a Sustainable Future as A Tribute to Mason Gaffney. |
The
Annotated Works of Henry George: Volume One
The six-volume edition of the works of Henry George assembles all
his major works for the first time with new introductions, critical annotations, extensive bibliographical material, and comprehensive indexing to
provide a wealth of resources for scholars and reformers.
“Volume 1” presents three major
works by George and new essays to provide context: Our Land and Land Policy (1871), The Irish Land Question (1881) and Property in Land
(1885). |
For an explanation of the image, see the first
article in the newsletter. |
Thanks for reading to the end! What did you think?
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