Response to: The ‘Georgists’ Are Out There, and They Want to Tax Your Land

The New York Times

The ‘Georgists’ Are Out There, and They Want to Tax Your Land

Amid a crisis in affordable housing, the century-old ideas of Henry George have gained a new currency.

By Conor Dougherty

Nov. 12, 2023

 

Excerpts:

When Mayor Mike Duggan talks about his accomplishments in Detroit, the list is both impressive and sad. He had the streetlights turned back on, and reopened closed parks. In the decade since he took office, the city has demolished some 25,000 blighted homes whose rusty debris and incubation of crime drag down neighborhoods.

The progress would be even greater, the mayor argues, if the city hadn’t been smothered by speculation. In the years after the Great Recession, tens of thousands of Detroit properties were bought by absentee landlords and faceless LLCs. 

“Blight is rewarded, building is punished,” he said in a recent speech, repeating it over and over for emphasis.

The refrain is a windup for Mr. Duggan’s scheme to fix the blight: a new tax plan that would raise rates on land and lower them on occupied structures. Slap the empty parcels with higher taxes, the argument goes, and their owners will be forced to develop them into something useful. In the meantime, homeowners who actually live in the city will be rewarded with lower bills.

Seemingly without knowing it, Mr. Duggan, a Democrat in his third term, was espousing what generations of policy minds consider one of the best ideas nobody will listen to: the land-value tax.

The notion that land is an undertaxed resource — and that this distorts markets in destructive ways — unites libertarians and socialists, has brought business owners together with labor groups and is lauded by economists as a “perfect tax.” And yet despite all that agreement, there are just a handful of examples of this policy in action, and none in America that match the Detroit proposal in scale.

This is at least in part because the land-value tax has historically been associated with Georgism, an ideology whose adherents are regarded as the tinfoil-hat-wearers of economics. Strict Georgists don’t just believe land-value taxes are a good idea; they believe that if America were to throw out all taxes, then replace them with a single land-value tax, it would end poverty and recessions for good.

The fundamentalist version of Georgism, like the fundamentalist version of anything, is plainly unrealistic. But the broader Georgist framework is full of insights about urban economies and how to improve them.

Strong feelings about land taxes are something the American public used to have. Georgism gets its name from Henry George, who in the 1890s turned a book, “Progress and Poverty,” into a populist movement. George’s argument was that since land derives most of its worth from its location and the surrounding community, that community, and not the owner, should realize most of the benefits when values rise. His fix might sound wonky — tax the value of land but not improvements atop it — but it made him a celebrity in the 1890s.

Over the past few decades, as Georgism has faded from a mass movement to a relic, the ideology has been carried on by clubs and nonprofits whose dwindling membership was mostly composed of old men.

But amid a continuing crisis in affordable housing, a generation of young professionals has burrowed into housing policy, and gotten interested in the YIMBY movement, for Yes in My Backyard, that advocates for denser neighborhoods and zoning changes. As YIMBYs have grown from a curiosity to a legislative force, a subset of them and others who are angry about the cost of living have discovered Georgism. Suddenly there are organizations like Young Georgists of America, modern-day pamphlets like the Henry George podcast and the Progress and Poverty Substack.

Young and old, Georgists come across as both radical and refreshingly pragmatic. They are interested in a specific problem: the cost of land and housing. But they embed that within a worldview that seeks to balance morality with commercial growth and rejects off-the-shelf -isms (capitalism, socialism, libertarianism) as unsatisfying or incomplete. Most are progressive liberals, while some lean libertarian. Their desire for an alternative makes them sound rational in some cases (land-value taxation is a good idea) and bizarre in others (we should get rid of every other tax).

Mayor Duggan knew none of this. When I asked him if he’d heard of Henry George at the beginning of our interview, his answer was “nope.” He was surprised to learn that he had become something of a Georgist hero, and that his plan was being cheered as a step toward restoring Georgism to the American conscience.

“This isn’t any deep philosophical movement,” Mr. Duggan said. “I’m trying to cut taxes.”

The central question of George’s writing was why rich cities seemed to create poverty instead of ameliorating it. In “Progress and Poverty,” published in 1879, George blamed rising land values and laid out the single-tax proposal as a cure-all.

Henry George did not invent land-value taxation, but he unquestionably was the idea’s greatest popularizer. With mix of wit and fury, and a whole bunch of exclamation points, his writing portrayed speculators as societal leeches grifting the city, profiting by doing nothing at all: “You may sit down and smoke your pipe,” he wrote in “Progress and Poverty.” “You may go up in a balloon, or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in 10 years you will be rich!”

From Delaware to California, every Georgist I talked to was closely following Detroit. Mr. Duggan’s proposal, while a long way from full-blown Georgism, represents something the movement hasn’t had much of: the hope of a real-world victory and a chance to show how land-value taxes can solve an actual problem — in this case, blight.

Detroit, for all its problems, is more hopeful today than it has been in decades. Will it ever again be the Detroit of the 1950s? Probably not. But to someone walking around downtown, past new cranes, new restaurants and a new Gucci store, it’s clear that the nadir of the Great Recession is comfortably in the past.

The problem is that in the years after the downturn, investors bought large swaths of the city and have mostly just sat on it.

From 2011 to 2015, about 100,000 properties — more than a quarter of the Detroit lots — were auctioned in tax foreclosures, according to Regrid, a Detroit-based provider of parcel data nationally. They weigh on the city’s progress and produce a stream of sad stories, like the one about a grandmother who was evicted from her home and moved to a van across the street, but continued to mow the lawn because she cared about the neighborhood.

Mr. Duggan refers to vacant properties as “lottery tickets.” They can be bought for little and held for little — some lots have taxes as low as $30 per year — but have a huge potential payoff, usually because someone else wants to invest. (Speculators recently made money after the city bought out vacant lots to help revive an auto plant that would bring jobs to the area.)

Problems like this are what helped spur interest in a new tax scheme. An early advocate for Detroit’s plan was Nick Allen, now a 32-year-old graduate student in urban planning at the Massachusetts Institute of Technology who worked for a city economic development agency from 2017 to 2019. Mr. Allen said his main project at the agency was finding new ways to stimulate growth that didn’t rely on grants and tax breaks. After reading “Progress and Poverty” years earlier, he’d become obsessed with the problem of speculation, and suggested a land-value tax. (Mr. Allen said he had never mentioned Henry George to the mayor because “the idea survives on its own without having to go back to 1879.”)

So instead of citing a dusty text, Mr. Duggan’s speeches on the land-value tax feature the politically salient image of homeowners with lovely gardens who pay more in property taxes than the vacant apartment building next door. A tax break for residents — paid for by nameless investors who are “taking advantage of the city” — would seem like a political layup.

But he needs state approval to do it, and lawmakers have been skeptical. This year, Michigan legislators debated a bill that would allow the mayor’s plan to go forward, but the measure was tabled until next year. Even if the bill passes, Detroit voters would then have to approve it. It’s a lot of ifs.

However it goes, the question for Georgists is whether Detroit is a particular city with a particular problem or the opening salvo in a larger conversation.

Most of the new Georgists I spoke to were concentrated in and around high-cost cities whose housing problems stem from a lack of supply — that is, basically, the opposite of Detroit.

When Mayor Duggan says “land tax,” he means encouraging growth on empty parcels and a tax cut for homeowners. When Mark Mollineaux, a 38-year-old engineer in Silicon Valley, says “land tax,” he is pointing to $3 million bungalows in Palo Alto and his wish that they could be replaced with denser housing or at least had higher taxes. In other words, in a depressed city, homeowners are victims; in rich ones, they’re the enemy.

“These homeowners have a land value of millions and they’re hoarding it,” Mr. Mollineaux, who hosts the Henry George Program, a radio show and podcast, said in an interview.

“I advocate razing Silicon Valley, socializing the land and building massive condos that are owned by the public and allocated equitably,” he added. “But even a tweak would be nice.”

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Comment:

Real estate reporter Conor Dougherty’s Times article, though rather sardonic in tone, has helped to raise public awareness of land taxation as a possible solution to cities’ ills, like property abandonment, land speculation, and unaffordable housing prices.  Nevertheless, there were a few particulars that he glossed over or overlooked.

First, as Dougherty states: “Young and old, Georgists come across as both radical and refreshingly pragmatic. They are interested in a specific problem: the cost of land and housing.”  Yes, and the principal focus for solving this is property tax reform.  There are established organizations, both young and venerable that are widely recognized, but maybe not by the author, such as: Robert Schalkenbach Foundation, Center for Property Tax Reform, Common Ground USA and its seven regional chapters across the country, Henry George Foundation-UK, Henry George Foundation-Canada, Prosper Australia, Labour Land Campaign-UK, Earth Sharing Canada, Coalition for Economic Justice-UK, and the largest venerable organization with operations reaching across the globe:

The Lincoln Institute of Land Policy traces its origins to John C. Lincoln, a Cleveland industrialist and investor who was intrigued by Henry George’s ideas about land ownership and taxation.  In 1946 he established the Lincoln Foundation to support other institutions in the teaching, research, and publication of information about George’s work. 

George’s “pure” theory was that if all taxes were replaced with a single land-value tax, it would end poverty and recessions for good.  All the organizations listed above know that this fundamentalist version of Georgism, like the fundamentalist version of anything, is plainly unrealistic.  Contemporary Georgists may be enthusiasts, but they are pragmatic, and they do not constitute a cult.

Consequently, the most favored realistic version of the land value tax (LVT) currently being promoted is the split-rate tax, where a higher tax rate is applied to land assessments and a lower rate to improvements – something less than a 100% land tax.  The Detroit rendering of this concept is a variation whereby a uniform portion of each property’s total value is exempted from taxation, then the lost revenue is replaced by a tax on each property’s land assessment.  Similar variations are being crafted to conform to states’ constitutional limitations on unequal (differential rate) taxation.  Thus far, only one state, Pennsylvania, allows local jurisdictions to adopt a split-rate tax.

Dougherty states that despite all the agreement about LVT being the perfect tax, there are just a handful of examples of this policy in action.  Well, that is just not accurate.  Let’s be clear, the taxation of land value is a global movement.  Over many years, several countries have implemented versions of land taxation, including Taiwan, New South Wales in Australia, Denmark, Estonia, Spain, Switzerland, Japan, Moldova, Slovak Republic, Hungary, Romania, and Russia.  Other nations such as Hong Kong and Singapore use a land lease system, and others a land capital gains system.  Another option is to raise the land tax rate to a high level, above revenue neutral.  With the excess revenue the U.S. state of Alaska issues an annual Permanent Fund Dividend, in this case seeded by the state’s revenue from mineral resources, particularly petroleum.  Every eligible Alaskan resident (including children) receives a dividend check.

Several state legislators in the United States have recently introduced LVT bills, including Connecticut, Virginia, Minnesota, California, and Oregon.  Those jurisdictions that have adopted LVT experienced significant in-fill and redevelopment, along with other positive incentive effects.  Pennsylvania has the most extensive record of the split-rate LVT.  A widely cited study of LVT use in Pittsburgh, first introduced in 1913, showed that building construction there surged ahead of other Rust Belt cities.  Taxing land at a rate five times higher than buildings compelled the owners of vacant sites to construct buildings and to move up the timing of construction.  Harrisburg, once one of the most distressed cities in the nation, adopted this approach in 1975.  Subsequently, 5,200 vacant properties were restored, and taxable businesses rose from 1,908 to 5,900.  Since Harrisburg taxed land at six times the rate of buildings, the city has jumped from bottom to the top group of American cities.  Former mayor Reed said: “Without hesitation we can commend the importance and benefit of the land value tax policy.  It has worked in Harrisburg and in other communities where it has existed.”

Back to mayor Duggan’s motivating issue:  that “tens of thousands of Detroit properties were bought by absentee landlords and faceless LLCs”.  This has become a national phenomenon.  In Seattle, recent upgrading in the once redlined Central District became a lucrative investment opportunity for large corporations motivated by profit and poised to extract significant wealth from a building boom.  

Portland didn’t used to be the kind of market where big, national pension funds came hunting for real estate.  But it has become one of the high-cost cities whose housing problems stem from a lack of supply.  Wall Street private equity firms are scooping up single-family rentals by the hundreds.  With increased competition from institutional investors, individual families are finding it’s not as easy these days to enter the housing market.  Changing from land as an undertaxed resource and distorting markets in destructive ways, to a highly taxed resource will help release vacant and underutilized sites for new housing development.  A high land tax will also dampen land price inflation, making housing more affordable.  And finally, let us bear in mind that LVT is not a novel tax, it is not a new tax; it is an alternative to a flawed tax system, transforming it into a fair and equitable system.

We are pleased that the Times piece has elevated the prominence of land value taxation as a viable property tax reform option.  Hopefully legislators in the Northwest U.S. will feel emboldened, as does mayor Duggan in Detroit.

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To read the entire New York Times article, open this link:

https://www.nytimes.com/2023/11/12/business/georgism-land-tax-housing.html

 

Tom Gihring, Research Director

Common Ground – OR/WA