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One path to the Georgist solution?
Without bankruptcy protection, a city that couldn’t pay bondholders would be forced to raise taxes until it could. This happened to West Palm Beach, Florida in the Depression and property tax rates rose to 42.5 percent of assessed value.
Here is more (interesting throughout) and I thank Chug for the pointer.
Posted by Tyler Cowen on November 5, 2009 at 11:46 AM in Economics, History | Permalink
Comments
42.5% property taxes?
Heh, and see the property value plummet like a rocket assisted plummeting machine.
Posted by: Doc Merlin at Nov 5, 2009 12:01:21 PM
Could there be a situation in which the tax burden on the city is so great, that the city does not have the economic activity necessary to pay the bondholders, even if 100% taxation of everything were possible?
Posted by: IVV at Nov 5, 2009 12:04:04 PM
Defualts on debt are also possible and usually preferable to ridiculous taxes. Why should the mayor get a pension when he helped f things up so bad? and why should lending institutions be rewarded for lending to such irresponsible a**holes? If a city borrows irresponsibly then let them have no credit for awhile.
Posted by: Gabe at Nov 5, 2009 12:12:29 PM
know it's just a zinger of a headline, but how does Georgist insight always become "irresponsible government gets to give property away to retired government workers." ?
I mean, this is an extreme example, but every time I've seen Georgism characterized it was always "we didn't earn X, therefore the government should be able to crap all over it."
Is it efficient market theory applied to the government? Government will always use assets rationally? How laughable would that be?
Posted by: Andrew at Nov 5, 2009 12:33:18 PM
besides I thought Georgist weren't neccessarily for huge property taxes...it was more about being for the elimination of ALL other taxes and ONLY having property taxes. Having 40% property taxes while maintaing sales/gas/income/FICA/sin taxes/inflation taxes is NOT Georgist at all.
Posted by: Gabe at Nov 5, 2009 12:39:04 PM
"Could there be a situation in which the tax burden on the city is so great, that the city does not have the economic activity necessary to pay the bondholders, even if 100% taxation of everything were possible?"
Actually, 100% property taxation is not a ceiling. One could imagine a town with property values down to a $5,000 avg. that would have to tax 200% of value to generate needed funds. The death point is when the check needed from each property, regardless of what % that is, exceeds people's willingness to live in that city. Then, no one will buy a property, even for $1, because they won't want to pay the annual taxes to live there. Keep an eye on Detroit, which may be on the way there.
Posted by: liberalarts at Nov 5, 2009 1:40:53 PM
Well, state governments, like California, and municipalities, as in California where there are constitutional property tax restrictions, are going to kill themselves because they are not making the tax increase and spending reductions together which are easy to make now, and difficult to do later. A tax increase with a spending cut works very quickly, and neither alone works very well.
Posted by: Bill at Nov 5, 2009 2:27:11 PM
ya californias problems have nothing to do with over spending and the falure of socialism.
Posted by: Gabe at Nov 5, 2009 2:56:25 PM
42.5% of assessed values doesn't tell us anything. There are places where assessments haven't been updated in many decades -- Sussex County, Delaware, is still using 1974 land assessments, which are a tiny -- and more important, uneven -- fraction of today's values.
A logical tax on land value would be at a level enough to collect virtually all of the economic rent -- about 5% per year -- 20 years' purchase, some would say. With market-based assessments, that could be a very substantial figure -- enough to finance not just local and state government, but also to contribute to federal revenues. Sure beats a tax on wages or sales.
Doc, taxing land value fully doesn't reduce land value at all. It still provides the same flow of income -- but it gets diverted to public purposes rather than a private portfolio. Taxing it means that the land sells for next to nothing, and is no longer an object of speculation. Since speculators contribute nothing to the economy, and actually dampen it, I think we'd be far better off without them.
Posted by: LVTfan at Nov 5, 2009 4:15:27 PM
"Doc, taxing land value fully doesn't reduce land value at all... ...Taxing it means that the land sells for next to nothing,..."
Can you help me understand your strange definition of the word "value"?
"Since speculators contribute nothing to the economy..."
Really? Do elaborate (and while doing so, please make reference to the transfer and pricing of risk).
Posted by: Russ R at Nov 5, 2009 7:32:53 PM
Can you help me understand your strange definition of the word "value"?
The land's as valuable as it has ever been. It's just that most of this value is transferred to the government, rather than to previous sellers. And if the LVT is implemented correctly (by offsetting other taxes), the price of land may actually rise at first, since existing taxes largely fall upon land values.
Really? Do elaborate
Russ R., could you elaborate on how speculation on land values contributes to the economy? What risks does it help transfer or price?
Posted by: anon at Nov 6, 2009 9:10:58 AM
We already have a Geoist solution right now:
Now that the federal government via fanny mae and freddy mac, and the federal reserve's buying up of bad debt, owns most os the mortgages in the US.
Posted by: Doc Merlin at Nov 6, 2009 11:55:12 AM
Can you help me understand your strange definition of the word "value"?
Value = the difference between the productive capacity of that unit of land and the productive capacity of land at the margin. Also known as the Rent of land.
Speculation. In most competitive markets, speculation performs a valuable social function. As you said, it translates future supply and demand conditions into the present. This is, in effect, societies way of planning ahead. A real world example would be that heavy rainfall in one region looks to destroy crops and cause a food shortage. Speculators drive up the price of grain in that region before it actually runs out, creating an incentive for growers in other regions to bring grain into the soaked region, thus averting starvation.
Speculation does not provide the same service in the land market for one simple reason: the supply of land is fixed for all intents and purposes. In the land market, speculative activity simply increase prices without providing a social service. Worse yet, speculative activity in the land market also contributes to many other social and econommic problem, including overvaluation of land itself. Check out Mason Gaffney's new book "After the Crash."
Posted by: Rob Ross at Nov 20, 2009 10:28:36 AM
