Date: 2024-04-24 Page is: DBtxt003.php txt00021621
US TAXATION
REVISIT GEORGISM
One change to the tax code could fund universal health care and education
REVISIT GEORGISM
One change to the tax code could fund universal health care and education
Photo by Hannah Busing on Unsplash
Original article: https://www.alternet.org/2022/02/change-tax-code/
Burgess COMMENTARY
I really wish that one simple change to the tax code could fund universal health care and education, but the sad reality is that when it comes to the tax code nothing is simple ... and especially the tax rules in the United States.
During my early days when I was training for the accountancy profession in the UK, I had to work on tax returns and was exposed to some of the ways in which wealthy individuals were able to game the system in all sorts of ways. Bottom line, if you have the resources to pay expensive professionals to find the loopholes for your own specific situation, there will be some loophole that will serve you.
My understanding of the UK and the US tax regimes has me concluding that the US system is just as bad or worse than the UK system.
The ideas described in the following article are interesting, but I don't have the same expectation that they would change anything very much. The challenge of writing really complex law is not trivial and it has to be done flwalessly or it will quickly become as bad or worse than what it replaced. While I understand that there is the need for a substantial change in the US tax code and also certain of the international tax agreements, I have presently concluded that simply better enforcement of the provisions of the existing law would make a big difference.
It would also help if some of the more egregious loopholes could be eliminated, both in the taxation of complex corporate businesses and the taxation of high wealth individuals. There is a lot of money that flows into so-called tax havens, and a number of these tax havens are here in the USA.
I am reminded of a study that I carried out for Cooper Brothers when I was working with them in the early 1960s and early in my career. I was doing the tax research for a series of pamphlets the firm was preparing under the title 'Doing Business in ???'. In the course of this work I learned that the method of taxation in Thailand for small businesses that did not keep very good records ... or none at all ... was to measure the size and prominence of the sign on the business and assess taxation based on that business characteristic. At the time I thought it was likely to be far more effective than more conventional rules and regulations about how the tax accounting should be done!!!!!!!!!
In the USA in the early 2020s we should be thinking about simple ways to collect all the taxes due from those that should be paying taxes, and following up on those that get out of paying their fair share simply because there are unintended and probably rather dubious loopholes. The IRS should have the resources to follow up on key questions.
Peter Burgess
Written by Polly Cleveland
February 01, 2022
In 1873, Mark Twain published his satirical novel, The Gilded Age, an era magnificently recreated in all its greed, ruthlessness and ostentation in the new HBO series of the same name.
Post-Civil War business boomed under President Ulysses Grant. John D Rockefeller and Andrew Carnegie founded the oil and steel industries, respectively. While new banks popped up like mushrooms, JP Morgan steadily built his banking empire. Railroads were the hot investment of the day. Funded by European speculators, new lines snaked across the continent, bringing people west and produce east.
A young San Francisco journalist, Henry George, watched with concern. He had just published a short book, Our Land and Land Policy (1871), denouncing land grabs by Union Pacific Railroad amid the frenzy of land speculation in the new state of California.
Then, disaster.
The problem
Many banks were heavily invested in railroads. In September 1873, a big New York City bank, Jay Cooke & Company, suddenly went bankrupt. Bank runs began across the nation, railroads failed, businesses cut wages and laid off workers. The police beat up unemployed protesters.
The next 10 years would long be known as the Great Depression. Back in San Francisco, George struggled to keep his newspaper going and his family fed. Meanwhile, appalled by the suffering he witnessed, he plunged into writing his next book.
The title says it all: Progress and Poverty, An Inquiry into the Cause of Industrial Depression, and of Increase of Want with Increase of Wealth … The Remedy (1879). Timely and eloquent, it swept the world, translated into some 40 languages. In his introduction, George posed a paradox:
It is true that wealth has been greatly increased, and that the average of comfort, leisure and refinement has been raised; but these gains are not general. In them the lowest class do not share. … It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.George gave a simple explanation: As the economy grew, benefits flowed to owners of land and other scarce natural resources. The benefits were unearned, derived from the mere fact of holding title.
Especially in speculative frenzies such as that in California, absentee landowners like the railroads withheld good land from use, forcing workers onto inferior land and lowering wages.
When land prices got too far out of line with reality, a sudden panic would collapse banks and send the economy into free fall.
The solution
George’s remedy was equally simple: shift all taxes onto land and use the revenues for public benefit.
His audience easily understood. In his day, state and local governments relied largely on property taxes. Since only a minority of citizens owned property, everyone rightly understood property taxes as wealth taxes, much of which fell on corporations like the hated railroads.
Taxing land meant leaving out the buildings and other improvements and raising rates to cover the difference. The obvious intended effect would be to penalize those who held good land from use.
In California, that would force absentee speculators to sell off their land to small settlers. The tax would also pop speculative bubbles.
George drew his analysis and his remedy from the classical economic tradition of Adam Smith, David Ricardo and John Stuart Mill.
Unlike them, he crusaded across the English-speaking world for land taxes and other reforms, such as the secret ballot, votes for women, anti-trust, ending discrimination against Irish immigrants and other minorities, and public ownership of natural monopolies like utilities.
He developed a huge following, particularly in the labor movement. Responding to voters, leaders implemented his reforms to varying degrees in parts of the US and around the world. California irrigation districts still rely on land taxes, as do cities like Sydney, Australia.
The run
With labor support, George ran for New York mayor in 1886, coming second to the Tammany candidate, but beating the GOP candidate, Theodore Roosevelt. (His run will be featured in the HBO drama.)
George died suddenly in 1897 during a second mayoral campaign. A hundred thousand people joined his funeral procession, one of the most magnificent in New York history. The Georgist movement merged with the progressive movement of the early 20th century. In 1913, Georgists helped design the progressive federal income tax. Some advisors to Woodrow Wilson and Franklin Roosevelt were Georgists.
Recent Georgist success stories, little-recognized as such, include the Asian “tigers”: Taiwan, South Korea, Hong Kong and Singapore. Here, redistribution of land, land taxes and land leasing funded universal health care and education, producing instant modern economies.
The disciples
I first encountered George in 1970 while working for Ralph Nader. Nader, an admirer of George, sent a team of us “Nader’s Raiders” to California to identify the largest landholders, including Union Pacific, and show how they obtained huge benefits at taxpayer expense.
The biggest boondoggle was the California State Water Project. Visible from the moon, it brought water from northern California all the way to San Diego, providing “surplus” water cheaply to giant landowning corporations on the west side of the San Joaquin Valley.
Despite the abuses our project documented, we Naderites felt a self-righteous optimism that we were leading a growing movement, continuing the tradition of prior activists. Little did we know at the time that the 1970s, for all their faults, represented the high point of reform, the time of greatest economic equality before or since.
It all quietly began to crumble in the 1980s Reagan era.
Taxes were cut for the rich and riddled with loopholes, antitrust enforcement dwindled and unions were undermined.
Worst from a Georgist perspective was the great property tax revolt.
The reforms under Franklin Roosevelt plus the post-World War II GI bills together created an economy where ordinary blue-collar workers could afford their own small houses. Homeownership rose from around 45 percent in the 1940s to 65 percent in the mid 1970s.
But widespread property ownership enabled wealthy interests to strike back. They called the estate tax a “death tax.” They claimed, with union support, that ordinary property taxes were a “regressive” burden on small homeowners. (See here and here for why that’s wrong.)
In 1978, Californians voted for Proposition 13, rolling back and freezing property taxes. Standard Oil of California saved $25 million a year.
California schools went from among the best to among the worst. Other states followed with constitutional amendments and crippling restrictions on local government’s ability to impose property taxes.
In 2010, Andrew Cuomo campaigned on freezing property taxes over strenuous objections from local school officials. Even before the 1970s, tax assessors responded to the growing unpopularity of property taxes by not raising effective rates when property values soared. When New York almost defaulted in the late 1970s, effective rates had fallen to a small fraction of rates in the 1940s. No wonder it couldn’t pay its bills!
The great property tax revolt made the US tax and benefit system less progressive, as sales taxes usually filled the gap and services were cut.
The details
A well-administered land or property tax falls at the same flat rate on estimated market value of land or all property within a jurisdiction. Nonprofit and government property is usually excepted.
Assessors are supposed to raise (or lower) estimates of value– “assessments”-- as the market rises (or falls). Typically, to minimize complaints, they allow assessments to fall way behind the market.
The property tax is intrinsically highly progressive because ownership of property is highly concentrated compared to income.
For example, in the US the top 10 percent own about 90 percent of stocks and about 70 percent of all wealth, including homes. The top 10 percent receive only something over 30 percent of income.
A land tax at a flat rate is more progressive than a property tax because land ownership is more concentrated. Moreover, large landowners tend to own better quality land and use it less intensively, including simply holding land vacant as did and does Union Pacific.
A switch from a property tax to a land tax, keeping collections the same, would reduce taxes on small owners and raise it on large ones.
It’s a fallacy to claim the property tax is “regressive” because rich districts can afford good schools at low rates while the opposite holds for poor districts. The same is true for any local tax; revenue sharing between districts or a state property tax can solve the problem.
When blue collar-workers became able to afford their own houses, they encountered property taxes as a big once-a-year lump (unless it was included with monthly mortgage payments). So of course they hated the tax and unions supported them.
Earlier generations would have understood that while the tax seemed like a burden, the bulk of it fell on much bigger and richer property owners. The revenue would go toward paying for services, like schools, that small owners disproportionately enjoyed.
Prop 13 was sold to Californians as relief for homeowners, yet it applied to all property, corporate included. Prop 13 was a classic 'pittances to the poor justifying windfalls to the wealthy.'
The barbarians
In Progress and Poverty, George said civilizations rise and thrive when citizens cooperate as equals. But when growing wealth creates more inequality and corruption, civilizations collapse from within.
The barbarians who sacked Rome in 410 AD met little resistance. George warned that the same could soon happen here — and might have happened but for the powerful reform movement he inspired.
“Whence shall come the new barbarians?” George demanded. “Go through the squalid quarters of great cities, and you may see, even now, their gathering hordes. How shall learning perish? Men will cease to read, and books will kindle fires and be turned into cartridges.”
Today’s new barbarians smashed their way into the US Capitol.
The book burners aren’t far behind.
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