Ricardo's Law - The Great Tax Clawback Scam

[Rajiv]

Ricardo's Law - The Great Tax Clawback Scam

Introduction to the book, 'Ricardo's Law - House Prices and the Great Tax Clawback Scam' by Fred Harrison: Ricardo's Law points lawmakers, policy analysts and social reformers toward a model of public finances that is fair and would deliver prosperity to everyone.

video 8 min

[Olduvai]

Re: Ricardo's Law - The Great Tax Clawback Scam

You'll just leverage real estate values while making farming (owning large quantities of land) really expensive. This won't help getting food prices down. Money flows will stop going into real estate but instead into stocks, bonds, commodities. This is pretty bad for the overall conditions of living infrastrucute. In the Netherlands a (better?) system is already partially in place. Local communities tax real estate value to their owners and the central government taxes capital owned upwards of a certain amount. The result however is that the rich emigrate while maintaining a "pied a terre" at the former home.
Such a taxing system change should be carried out on a bigger than national scale (talking about Europe) to be viable.
It would be an illusion to think any system could tax the really rich as they are able to circumvent these taxes unless there is a truly global taxing system. This is currently the taxing problem on multinationals as they'll just change country.

[Rajiv]

Re: Ricardo's Law - The Great Tax Clawback Scam

I believe Dave Wetzel addresses some of your concerns in the other video I posted - Beating the Bust: Land Value Taxation

See also Pennsylvania's Success with Local Property Tax Reform: The Split Rate Tax

Some Data on Consequences


Let us now consider how this has worked in Pittsburgh and Harrisburg in particular. Pittsburgh has the longest history of this approach dating back to 1913. This city has extended its land value tax since that time so that now land values are taxed six times more heavily than are building values.

Pittsburgh has a more compact development pattern than many cities, with the big buildings concentrated in the downtown area, not sprawled across the land as is the case in so many cities where land speculation forces "leapfrog" development. Pittsburgh was highlighted in a Fortune magazine story (8/8/83) entitled "Higher Taxes that Promote Development." Research conducted by Fortune's real estate editor on the first four cities to go to the two-rate system independently verified that this approach does indeed encourage economic regeneration in the urban centers.

A recent study (Table 3) by University of Maryland economists, Wallace Oates and Robert Schwab, compared average annual building permit values in Pittsburgh and 14 other eastern cities during the decade before and the decade after Pittsburgh greatly expanded its two-rate tax. Pittsburgh had a 70.4% increase in building permits while the 15 city average decreased by 14.4% of building permits issued. These findings about Pittsburgh's far superior showing are especially remarkable when it is recalled that this city's traditional basic industry - steel - was undergoing a severe crisis throughout the latter decade.

Research based on building permits issued in the three-year period before and after the implementation of the two-rate tax policy in Pennsylvania cities consistently shows significant increases in building permits issued after the policy was put in place.

Table 3

Average Annual Value of Building Permits (Thousands of Constant 1982 Dollars)
City	1960-79	1980-89	% Change
Pittsburgh Akron Allentown Buffalo Canton Cincinnati Cleveland Columbus Dayton Detroit Erie Rochester Syracuse Toledo Youngstown 15-City Average	181,734 134,026 48,124 93,749 40,235 318,248 329,511 456,580 107,798 368,894 48,353 118,726 94,503 138,384 33,688 167,503	309,727 87,907 28,801 82,930 24,251 231,561 224,587 527,026 92,249 277,783 22,761 82,411 53,673 93,495 11,120 143,352	+70.4 -34.4 -40.2 -11.5 -39.7 -27.2 -31.8 +15.4 -14.4 -24.7 -52.9 -30.6 -43.2 -32.4 -67.0 -14.4
Source: "Urban Land Taxation for the Economic Rejuvenation of Center Cities: The Pittsburgh Experience" by professors Wallace Oates and Robert Schwab of the University of Maryland, 1992, available from Center for the Study of Economics, 2000 Century Plaza, Suite 238, Columbia, MD 21044

Pennsylvania is a pioneer leading the way and this is being increasingly acknowledged. A Wall Street Journal article (3/12/85) was entitled "It's the Land Tax, by George, That Sets Pennsylvania Apart." (The reference is to Henry George who drew great public attention to these possibilities a long time ago.)

Recently the headline of an article in The Washington Post (9/24/95) simply stated "D.C. Should Learn From Pittsburgh." Stories in the Philadelphia Inquirer (6/5/95) and the Philadelphia Weekly (7/19/95) urged the adoption of land value tax policy. The Herald Mail announced (10/8/95) "Hagerstown Council to Consider Split Tax Rate." This is a just a small sampling of the rapid increase in media attention to this policy.

To turn now to Harrisburg which was once considered one of the most distressed cities in the nation. Harrisburg since 1982 has sustained an economic resurgence that has garnered national acclaim. It twice won the top United States community honor as All-American City, along with the top state recognition from the state Chamber of Business and Industry as Outstanding Community in Pennsylvania, all because of Harrisburg's development initiatives and progress.

Harrisburg taxes land values three times more than building values. This city's glossy promotional magazine points to its 2/3 lower property tax millage on improvements than on land as one reason why businesses should locate there.

Mayor Stephen Reed of Harrisburg sent the following letter to Patrick Toomey, businessman, civic activist, and member of the Home Rule Commission of Allentown (10/5/94):

"The City of Harrisburg continues in the view that a land value taxation system, which places a much higher tax rate on land than on improvements, is an important incentive for the highest and best use of land in already developed communities, such as cities.

In our central business district, for example, our two-tiered tax rate policy has specifically encouraged vertical development, meaning highrise construction, as opposed to lowrise or horizontal development that seems to permeate suburban communities and which utilizes much more land than is necessary.

With over 90% of the property owners in the City of Harrisburg, the two-tiered tax rate system actually saves money over what would otherwise be a single tax system that is currently in use in nearly all municipalities in Pennsylvania.

We therefore continue to regard the two-tiered tax rate system as an important ingredient in our overall economic development activities.

I should note that the City of Harrisburg was considered the second most distressed in the United States twelve years ago under the Federal distress criteria. Since then, over $1.2 billion in new investment has occurred here, reversing nearly three decades of very serious previous decline. None of this happened by accident and a variety of economic development initiatives and policies were created and utilized. The two-rate system has been and continues to be one of the key local policies that has been factored into this initial economic success here."

Here are a few of the improvements mentioned in the Harrisburg promotional literature²:

• The number of vacant structures, over 4200 in 1982, is today less than 500.
• With a resident population of 53,000, today there are 4,700 more city residents employed than in 1982.
• The crime rate has dropped 22.5% since 1981.
• The fire rate has dropped 51% since 1982.

These results are especially noteworthy when one considers the fact that 41% of the land and buildings of Harrisburg cannot be taxed by the city because it is owned by the state or non-profit bodies.

I wonder, how Pittsburgh and Harrisburg did in the recent housing bubble -- whether the bubble was more or less than the other comparable cities.

Doing a quick search, this is what I found on Pittsburgh
Local housing trends buck nationwide declines

When local real estate company officials meet with colleagues from other parts of the country these days, they're often the only ones who are happy.

That's because the steady, stable Pittsburgh area housing market hasn't suffered the bumps and bruises that have battered other, higher-flying U.S. markets and the nation as a whole.

Neither housing prices nor home sales have suffered precipitous declines in the seven-county Pittsburgh region, local experts note. They don't expect that to change in 2007.

"There definitely has been no burst of the housing bubble in Pittsburgh, because we haven't had a housing boom," said George Hackett, current board president of West Penn Multi-List Inc., the region's major home-listing service.

Just did some calculations
San Diego median income 64,273 median house 569,900 ratio 8.9
Pittsburgh median income 30,278 median house 74,000 ratio 2.44

From Pittsburgh, Pennsylvania

Pittsburgh is consistently ranked high in livability surveys. In 2007, Pittsburgh was named "America's Most Livable City" by Places Rated Almanac, and "America's Best City for Relocating Families" in 2008 by Worldwide ERC, a relocation services industry trade group
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Livability rankings typically consider factors such as cost of living, crime, and cultural opportunities. Pittsburgh has a low cost of living compared to other cities in the northeastern U.S. The average price for a 3- to 4-bedroom, 2-bath family home in Pittsburgh is $162,000, which is well below the national average of $264,540, as of October 2004, according to the Federal Housing Finance Board.

[metalman]

Re: Ricardo's Law - The Great Tax Clawback Scam

this is not exactly a new problem. here's a seuss cartoon from the 1940s...



same old shit.

[Guest]

Re: Ricardo's Law - The Great Tax Clawback Scam

Man, for an economic website there sure is a lack of economic knowledge on display in most of these videos. Knowingly or not, putting this kind of agendized video in the single most prominent spot on the webpage is a de-facto endorsement of it. If not, why aren't there any UFO sighting videos showing up? (or are there?)

Does it occur to anyone that taxes on "land" are simply passed on to tenants in the form of higher rents? That higher taxes on those who employ and create businesses might just lead to more unemployment and the flow of wealth to other nations? Does he realize that the reason many Brit musicians maintain homes in the USA and elsewhere is for tax reasons?

Does it occur to anyone that highly taxes real estate will LOSE value proportionally? Doubt it? Then hypothetically raise the tax on those $1M pound homes to 100% per year and see how much they're worth. The neighborhoods are more valuable because of the effort, work, thought, and the very fact that rich people want to live there. Tax them higher and they'll simply move.

Does it occur to anyone that it's easier buy votes promising to remove taxes on the more numerous "poor" while raising taxes on the less numerous "rich" landowners? That just maybe this kind of guy has his own agenda?

Does it occur to anyone that the "poor" use more public services than "the rich"? Buses, mass transit, charity hospitals, public schools, even roads they use to commute to jobs on. I live on acreage in the country and my neighbors are cows. Yet my home is worth more than my old ones. Did society somehow make that happen? Did the poor?

Does it occur to anyone that this man is using a false premise that anyone who is "poor" is "poor" for life? I'm sure Britain has more of a class system there but let's get real. Most people are "poor" at one point in their lives. I was "poor" in college and afterwards for several years. I inherited ....zip. My wife and I work for what we have and pay a hell of a lot more in taxes of all sorts than we did when "poor".

Does it occur to this guy that maybe the "poor" there are "poor" because of over-taxation and regulation, not because taxes are not high enough?

See Thomas Sowell's "basic economics" and "applied economics" books which dispell many of these stupid myths.

Populism is a dangerous weapon that has the bad habit of backfiring on the people enthralled with it. Games are played with the tax system using influence, no doubt. But to say the solution is to shift taxes from the many to the few is pretty transparent. He might as well be on the street corner offering cash payments for votes.

[FRED]

Re: Ricardo's Law - The Great Tax Clawback Scam

Man, for an economic website there sure is a lack of economic knowledge on display in most of these videos. Knowingly or not, putting this kind of agendized video in the single most prominent spot on the webpage is a de-facto endorsement of it. If not, why aren't there any UFO sighting videos showing up? (or are there?)

Does it occur to anyone that taxes on "land" are simply passed on to tenants in the form of higher rents? That higher taxes on those who employ and create businesses might just lead to more unemployment and the flow of wealth to other nations? Does he realize that the reason many Brit musicians maintain homes in the USA and elsewhere is for tax reasons?

Does it occur to anyone that highly taxes real estate will LOSE value proportionally? Doubt it? Then hypothetically raise the tax on those $1M pound homes to 100% per year and see how much they're worth. The neighborhoods are more valuable because of the effort, work, thought, and the very fact that rich people want to live there. Tax them higher and they'll simply move.

Does it occur to anyone that it's easier buy votes promising to remove taxes on the more numerous "poor" while raising taxes on the less numerous "rich" landowners? That just maybe this kind of guy has his own agenda?

Does it occur to anyone that the "poor" use more public services than "the rich"? Buses, mass transit, charity hospitals, public schools, even roads they use to commute to jobs on. I live on acreage in the country and my neighbors are cows. Yet my home is worth more than my old ones. Did society somehow make that happen? Did the poor?

Does it occur to anyone that this man is using a false premise that anyone who is "poor" is "poor" for life? I'm sure Britain has more of a class system there but let's get real. Most people are "poor" at one point in their lives. I was "poor" in college and afterwards for several years. I inherited ....zip. My wife and I work for what we have and pay a hell of a lot more in taxes of all sorts than we did when "poor".

Does it occur to this guy that maybe the "poor" there are "poor" because of over-taxation and regulation, not because taxes are not high enough?

See Thomas Sowell's "basic economics" and "applied economics" books which dispell many of these stupid myths.

Populism is a dangerous weapon that has the bad habit of backfiring on the people enthralled with it. Games are played with the tax system using influence, no doubt. But to say the solution is to shift taxes from the many to the few is pretty transparent. He might as well be on the street corner offering cash payments for votes.

We disagree with almost everything we read and see, so if we restricted ourselves to that we'd never post anything. The point of posting this video is to elicit debate.

The land tax idea is wrong-headed for the reason that, as you and others have pointed out, money will simply move to a country where the taxes are lower.

But the other point the video makes is interesting, that many of the taxes that are paid by the top 5% are returned in various ways. Warren Buffett has made this point.

The iTulip position on taxes? Flat tax.

[Rajiv]

Re: Ricardo's Law - The Great Tax Clawback Scam

Man, for an economic website there sure is a lack of economic knowledge on display in most of these videos.

Bruce, are you an economist -- that you make such a claim? Are you familiar with Ricardo's Law, and the work of William Vickery?

From Fred Harrison's bio

Fred Harrison is a Director of the London forecasting consultancy Economic Indicator Services, and Research Director of the London-based Land Research Trust. He is a graduate of University College, Oxford, where he read Politics, Philosophy & Economics. He also studied for the MSc at Birkbeck College, London (1973-74).

He was the Chief Reporter of a Fleet Street newspaper, following which he worked as an economic consultant.

This included ten years during the 1990s advising the Economics Department of the Russian Academy of Sciences and the Russian Parliament in the transition from a command economy to a more equitable market economy.

So he does have an inkling of what he is talking about. And your arguments are not quite correct -- not all taxes can be passed on to the buyer or renter!

Further, the total amount of tax is the same as regular property tax. Only it is levied on the land and not the buidings or the workplace/business on it. Look at the other video presentation linked above if you want to see how it works. As stated above, the taxed has worked very well in Pennsylvania for almost a hundred years.

[Guest]

Re: Ricardo's Law - The Great Tax Clawback Scam

Bruce, are you an economist -- that you make such a claim? Are you familiar with Ricardo's Law, and the work of William Vickery?

From Fred Harrison's bio



So he does have an inkling of what he is talking about. And your arguments are not quite correct -- not all taxes can be passed on to the buyer or renter!

Further, the total amount of tax is the same as regular property tax. Only it is levied on the land and not the buidings or the workplace/business on it. Look at the other video presentation linked above if you want to see how it works. As stated above, the taxed has worked very well in Pennsylvania for almost a hundred years.

Of course he does. He's a cynical shite looking to stick it to the wealthy for whatever reason. History is full of people who know right from wrong perfectly well but because of various factors, be it childhood traumas, slights and insults, etc, have very base motivations that they dress up in fancy terms so that they can basically just stick it to someone they don't like or gain power.

See Hitler, Adolph: Stalin, Joseph:, Carter, Jimmy for a broad spectrum of quite different examples of people who knew better but had motivations that a more rational person would reject. Socialism....experience has shown that perhaps it IS a mental disorder, a child-like wish for utopia.

The world is full of over-educated fools lacking common sense, too. That's not to be overlooked.

psst...your buddy George Bush was Ivy League educated himself. Should we all defer to his better judgement then?

Finally, as for someone's prestigious education, I think many itulipers here would gleefully point out that the government, banks, brokerages, and many other institutions have legions of highly educated and credentialed economists on staff who all said assuredly that gold would be at $275 today, oil would be $30/barrel, and we could borrow and spend our way to wealth and prosperity. So I guess that fancy "book learnin'" isn't all it's cracked up to be sometimes? You see, the quality of the skull it's filling with knowledge seems to be slightly more important.

PS. I note that he's not advocating simply cutting government spending so that everybody's taxes could be lowered. But then what good leftist would ever advocate that?

[mikedev10]

Re: Ricardo's Law - The Great Tax Clawback Scam

being that the argument is the taxes spent on local infrastructure come back into my home/property as gains in its value, doesn't that fall apart when looking at the historical value of housing - in that from 1900-2000 housing basically rose only at the rate of inflation?

[FRED]

Re: Ricardo's Law - The Great Tax Clawback Scam

being that the argument is the taxes spent on local infrastructure come back into my home/property as gains in its value, doesn't that fall apart when looking at the historical value of housing - in that from 1900-2000 housing basically rose only at the rate of inflation?

Indeed. Only the value of the land that the housing is on is raised by the improved infrastructure above the rate of inflation.

The scam is that a building is an "investment." It is not unless it can produce rent in excess of mortgage, taxes, and maintenance.

A home one lives in, since it is not rented, can never be an investment. That's just common sense. Amazing that 99.9% of the population believes otherwise.

[oddlots]

Re: Ricardo's Law - The Great Tax Clawback Scam

Bruce42,

I think you're missing an opportunity to test out your own beliefs. The ideas underpinning the idea of a land tax are rooted in classical economics. The claim is that, by de-taxing land values progressively over time, and forcing those taxes onto labour via income tax etc. - amounts to the same thing since, after all, something will have to be taxed - we have created an economy that offers a minority a "free lunch," and so are locked in a progressive decline where economic activity becomes more and more extractive and destructive.

That's an interesting argument, particularly at this juncture, no?

I think it should be especially interesting to anyone with libertarian leanings since, with such values, the charge that a "free lunch" is on offer should be of interest. In libertarian terms this would be inherently unjust, no?

Reducing it simply to

taxes are bad

therefore

anyone who proposes changing the tax structure is bad

is kind of simplistic in the extreme.

Agree or disagree, the background to this train of thought - the notion of economic rent, Georgism etc. - is worth knowing and thinking through IMHO. Reggie started a great thread on it here:

http://www.itulip.com/forums/showthr...=156286&page=3

Just a suggestion. ;)

[chr5648]

Re: Ricardo's Law - The Great Tax Clawback Scam

Does it occur to anyone that taxes on "land" are simply passed on to tenants in the form of higher rents?

Does it occur to anyone that highly taxes real estate will LOSE value proportionally?

That is the whole point, higher taxes will decrease the value of land, I don't know about you but IMHO thats a good thing. There has been massive price inflation that has been under reported over the past 30 years and wages have not been inflated in fact whenever there has been any sort of wage inflation .gov comes in and stops it.

If you drive land prices down you can make it more affordable for more people to own, rent, or use the land for productive purposes aka economic growth. Alot of people nowadays are closed out of the property/land market and if they are able to enter it end up having to pay inflated mortgage and interest payments to the rentier class. This destroys the productive capacity of the economy.

But good news for you Bruce, most people are too stupid to understand that, so be happy, nothing is going to change with the current system.