A Tax Policy With San Francisco Roots
The followers of Henry George, a 19th century political economist, once included Willie Brown. George's idea of a land tax has resonance today.
Henry George, the 19th-century political economist, spent his seminal years in San Francisco. He is no longer a household name, and his “land-value taxation” theory is probably among the few radical ideas for government financial reform that haven’t gotten a hearing in Washington in recent weeks.
But his ideas, in their way, are remarkably relevant now.
George proposed a simple taxation system in which land, but not the value of any buildings or improvements, would be taxed at a rate so high that it would satisfy all of government’s revenue needs. No complicated income tax code. No dog’s breakfast of special fees and gimmicks to balance government budgets. Just a confiscatory tax on land. “Georgism,” as its single-tax principle is known, would be devastating for real estate speculators and large landowners, but proponents say it would be painless for most everyone else.
Here in California, a state that has bled itself dry by radically reducing property taxes, it’s easy to forget that just a few decades ago Georgism had an avid following. None less than Willie L. Brown Jr., the former San Francisco mayor and State Assembly speaker, championed Georgist policies, sometimes with the support of John Burton, the longtime Democratic power broker.
Brown twice introduced state legislation to create a Georgist land-tax regime. “I was badly defeated with that legislation both times,” he wrote a fellow Georgist in 1973. “But I am still convinced that land-value taxation should be given a try.”
A few years later, voters opted instead to slash property taxes via Proposition 13. Brown moved on, first to an enormously successful (and centrist) political career, and then to his current gig as a high-powered lawyer who counts major real estate developers and corporate landowners among his clients.
But Brown was certainly in good company as a Georgist. Devotees over the years have included Leo Tolstoy, Winston Churchill, Sun Yat-Sen, and the inventor of the board game that would become Monopoly.
“Henry George was called the Prophet of San Francisco,” said Joshua Vincent, a Georgist and the executive director of the Center for the Study of Economics in Philadelphia. “He led a mass movement, a pre-socialist labor movement.”
George later moved to New York City and was a candidate for mayor when he died of a stroke four days before the 1897 election.
It’s easy to see why George’s theories and his most-famous book, “Progress and Poverty,” published in 1879, appealed to the young Brown. The grandson of slaves, Brown grew up poor in segregated Mineola, Tex., and came to San Francisco in 1951 as a teenager with little education and less money. He is an entirely self-made man.
“Willie Brown was one of the few who had the courage to speak up for this reform and actually introduce land-value tax legislation,” said Cathy Orloff, who in the 1970s ran the Henry George School in San Francisco, which offered classes in Georgism to hundreds of students. “People in the school greatly admired him for that.”
Brown did not respond to inquiries about his Georgist past, and he’s clearly not preparing to take up the flag again.
But Joseph E. Stiglitz, the Nobel Prize-winning Columbia University economist, is stepping into the breach. In December, Stiglitz called for the adoption of “Henry George Principles” as part of his prescription to resuscitate the American economy. “Land does not disappear when it is taxed,” Stiglitz wrote in “Principles and Guidelines for Deficit Reduction,” a working paper for the progressive Roosevelt Institute. “Henry George, a great progressive of the late nineteenth century, argued, partly on this basis, for a land tax.”
Would California have fared better if Brown’s Georgist land-value tax had won widespread adoption? It’s almost impossible to contemplate, given how the economic structure of the state has been determined by private land development. Instituting land-value taxation in one fell swoop would cause the value of real estate to plummet, an outcome few would applaud.
But governments at every level are being forced to get creative as they seek new ways to finance basic public services, and if anything good is to come of the current catfight in Washington, it may be a renewed openness to all manner of budget-cutting, tax-reforming ideas.
The Prophet of San Francisco could yet have his day.
This article also appears in the Bay Area edition of The New York Times.
Elizabeth Lesly Stevens
Posted below, with permission, is a comment a reader emailed directly to me this afternoon:
I just wanted to applaud you for the article "A Tax Policy With San Francisco Roots" that appeared in the July 30th New York Times. Full disclosure: I've considered myself a Georgist (and Pigovian) for a few years now.
As an Oregonian, I can certainly relate to how brilliant people fall into obscurity after a few years, when their ideas could very well solve today's problems. The reason I say that is because the most influential Oregonian that no one has ever heard of, William Simon U'Ren, wasn't even mentioned in school when I was growing up in the 70's and 80's. Yet he brought to Oregon the secret ballot, put into place the "Oregon system" (Initiative, Referendum, Recall), and through his efforts Oregon had the first Presidential Primary and was the first state to have direct election of Senators. He was also a strong proponent of Henry George's "Single Tax," and if I were conspiracy-minded, I would think there was some relation between his support for that and his current obscurity. (I mean, seriously, how much does one man have to do to be remembered? He did everything politically that makes Oregon "Oregon" except bring in the bottle bill.)
Can you tell he is now a personal hero of mine? :)
I hope your article sends people to Google and Wikipedia to find out more about Henry George. Maybe some will view him as I do -- I didn't even hear about George (or U'Ren, for that matter) until I was 40.
Best of luck, and thanks again!
Michael Rouse
Jacksonville, OR
h. brown
Humble beginnings,
As I recall, George was a clerk in a patent office or someplace where they registered deeds or something like that. He was also a hero to Einstein.
The only thing remotely Georgist that I can think of around town is a 'Land Trust' plan the Green Party championed. The idea is to take land out of speculation. At meetings they talked about putting a quarter of SF's land into a land bank. Last I heard they'd succeeded with one or two small buildings.
' Greed's all encompassing and without conscience or limits. It's also the driving force of the people who run San Francisco. It's why Larry Ellison will take huge swaths of land along the Bay as an entitlement without blushing and then sue you for more for as long as he lives. It's why the Shorensteins and the Fishers and Angelo Sangiacomo ('the father of rent control') can never have enough.
So our land barons continue to hoard with the aid of politicians and bureaucrats like Willie Brown and Ed Lee and David Chiu. When the imbalance gets worse people dig out 'Progress and Poverty' and call for reform. Which Lenin said can only come from the barrel of a gun.
You're sounding professorial, Elizabeth.
It's good reading.
h.
Elizabeth Lesly Stevens
Again, posted with permission, a reader comment emailed directly to me this morning:
So pleased that you wrote this excellent article. San Francisco actually exists because of the Land Value Tax. Henry George may not have become the mayor of New York but one of his acolytes Edward Robeson Taylor became mayor of SF post the 1906 earthquake.
When the city was leveled there was nothing left to tax except for land. The city bounced back and prospered and transformed.
You can read more about it here
http://www.masongaffney.org/essays/Repopulating_New_Orleans_dollarsandsense.pdf
George's ideas are massively important at local and federal levels to bring sanity, fairness and sustainable progress to our economy and neighborhoods.
My first and only (at this point) film "The End of Poverty?" was inspired by Henry George and I am currently working on a study for a prominent Mayoral candidate in NYC on how to bring aspects of LVT into play here with Josh Vincent.
I would just add that I would quibble over the word "confiscatory"...the idea isnt to take land away from anyone but to pay the appropriate cost for it.
Thanks for bringing the subject to light!
best,
Matthew Stillman
Mary Cleveland
Thanks to Elizabeth Lesly Stevens for the terrific article.
However, I'd like to correct a misunderstanding of the effect of George's single tax on land. The tax would not "cause the value of real estate to plummet," because while taxes would increase on land values, they would simultaneously be removed from improvements, sales, and wages. The net effect would be to increase the value of land in central cities, that is, on the land most suitable for the high value exchanges that cities make possible. However the speculative value of suburban land would fall. In net, the single tax would make the best land more valuable, and the marginal land less valuable. (I don't believe it would be possible to tax away all land values unless the revenues went to waste.)
Polly Cleveland
New York
Formerly San Francisco
Edward Dodson
Until my early 30s I held two philosophers in greatest esteem: Thomas Paine and Mortimer J. Adler. Then, I was introduced to the writings of Henry George and found, to my delight, that he had expanded considerably on the arguments made by Paine, particularly regarding treating the ownership of land as a privilege for which society was due the payment of what Paine referred to in 'Agrarian Justice' as a ground rent. Paine certainly acquired his insights from earlier writers (e.g., John Locke, Adam Smith, Francois Quesnay and Anne Robert Jacque Turgot). A close reading of Henry George discloses that ground rent is by its nature societal property. Allowing individuals or privage entities to claim ground rent as income creates what Locke described as 'licence' (i.e., a form of license that allows the holder to enjoy unearned income).
One of our most serious obstacles to changing the way government raises its revenue is our long history of embracing land speculation and even land monopoly as legitimate individual pursuits of wealth. Land speculation began even before the first colonists stepped off the ships from England and has been an ingrained part of our societal structure ever since, enriching some and impoverishing millions. And yet, as a colleague of mine has stated, those of us who embrace the proposals of Henry George offer a solution to a problem most people do not know exists.
Elizabeth Lesly Stevens
Posted again, with permission, is a reader comment emailed to me directly:
[Thank you for writing] "A Tax Policy With San Francisco Roots." You will no doubt get flak from
Howard Jarvis groupies over it. Yet if you review Jarvis's rhetoric,
you will see that the results of Prop 13 stand in stark, ugly
contrast to Jarvis's promises. Here are some things I think you
should know.
Cutting property tax was supposed to make housing affordable.
Instead, the tax cuts attracted so many speculators that California's
"affordability index," which had been only 10% higher than the
national average when Prop 13 passed, is now about 300% higher. (The
affordability index simply divides the median house price by the
median income.)
Twenty-three of the twenty-five least affordable cities are in
California. The least affordable of all is San Francisco, where the
median house price in 2005 equalled 12.64 years of median incomes. (I
don't count Berkeley, which has so many students with part-time jobs
that its median income is artificially low.)
http://www.savingcommunities.org/issues/taxes/property/affordabilityrank.html#r219
Jarvisites ask, aren't these high prices because of California's
growth during the second half of the twentieth century? Most of
California's pro-growth momentum developed *before* Prop 13, and most
of the housing price boom came *after*, while growth momemtum was
slowing. Also, Texas, the other of the two fastest-growing states,
relies heavily on property taxes and is one of the most affordable
states generally, containing four of the six most affordable cities.
(Top of same chart linked above)
Well, then, isn't it because of California's climate and culture?
Certainly San Francisco is the Paris of America, and, if price were
not an issue, I personally would choose San Francisco over any other
city in the country. Abilene, the most affordable city in the United
States, is no San Francisco.
Yet Austin, the garden city of Texas, is far more affordable than
Bakersfield, which has few cultural amenities and a brutally hot,
dry, dusty environment.
Also, high real estate taxes do not mean high taxes overall.
California has very high taxes on everything *but* real estate. New
Hampshire, which has very low taxes overall, gets 2/3 of its total
state and local revenue from real estate taxes. The anti-tax
Libertarian Party spent years reviewing states to see which state
would be called "The Free State," and chose New Hampshire.
Also, Massachusetts, which passed a slightly watered-down version of
Prop 13, also ended up with very high sales and income taxes, leading
to a notorious wave of migration from northern Massachusetts to
southern New Hampshire.
In general, within cities of a particular population category, the
lower the property tax the less affordable the city.
http://www.savingcommunities.org/issues/taxes/property/affordabilitycharts.html
Property-tax bashers should know that one does not have to tax the
entire property to get stable housing prices. Pittsburgh went to a
higher tax rate on land than on buildings in 1913, after being
hammered by depressions throughout the 19th century.
During the Great Depression, and despite the great flood of 1936,
Pittsburgh´s land prices fell only 11% between 1930 and 1940,
compared to 58% in Detroit, 50% in Los Angeles, 46% in Cleveland, 28%
in Boston, 27% in New Orleans, 26% in Cincinnati, 25% in Milwaukee
and 21% in New York. Land prices in Pittsburgh even fell less than in
Washington, D.C., where the New Deal was booming. Pittsburgh also
grew while other rust-belt cities declined in the wake of the
collapse of Big Steel, and Pittsburgh real estate values are actually
increasing during the current depression.
http://feasta.org/documents/fleeing_vesuvius/?p=167
Twenty other taxing jurisdictions (mostly cities) in Pennsylvania
have shifted to land value tax, and every one of them has seen
construction surges without real estate price booms.
California committed economic suicide in passing Proposition 13, not
because of lost tax revenue, but because of the land speculation it
attracted. For every dollar a home buyer saves in property taxes, he
pays several extra dollars to the previous owner and the banks. Small
wonder California leads the nation in foreclosures.
Sincerely,
Dan Sullivan, director of education
Saving Communities
edudir@savingcommunities.org
h. brown
thank you Elizabeth,
I feel like a parched field ... in the rain.
h.
eight arms
Willie Brown discovered that crackpot economic theories will not pass, and and polls indicate that repealing prop 13 on residential real estate will not pass.
But repealing prop 13 on commercial property could very well pass.
From your history I have to wonder if this article isn't a political ploy to paint proponents of the repeal of prop 13 as advocates of crackpot 'political economists'.
("In the late nineteenth century, the term 'economics' came to replace 'political economy'...)
http://en.wikipedia.org/wiki/Political_economy
The repeal of prop 13 on commercial property has a real chance to pass. Hope all the rich people on the your board aren't too twisted up about all that money its going to cost them.
Phil Allen
If your paper ever chooses to make endorsements, plug (revisit)this when taxing initiatives and legislative bill-intro's, hearings and votes are scheduled. Thank you, Phil
The Singletaxonland
Very refreshing to finally read about the solution for California along with the other 49 States. Elizabeth, you struck gold in San Francisco. Please do not stop because you are on heading, airspeed, and altitude. Stay on course. Henry George is the answer not prop 13.
I would not call the recapture of the Rental Value of Land a radical idea. A radical idea (like Prop 13) is what we do now for raising revenue. We tax human productivity. Yes, we punish the economy to fix the economy. This is a radical idea. Call it sales tax, income tax, corporate tax, etc. These are the radical ideas.
The recapture of Rental Value of Land is common sense. The landlord does nothing but hold out his hand for the productive people to fill it up. The value of land is a result of the community, a wealth transfer to the landlord for doing nothing. This privilege is radical.
When we pay taxes for highways, bridges, schools, dams, courts, jails, police, etc. the value of land increases. All Henry George wants to do is recapture this wealth prior to punishing the economy.
Why this concept is so hard to grasp is very frustrating. It is the one solution the AFL-CIO and National Manufacturers Association should agree on.
eight arms
@singletaxonland: "The landlord does nothing but hold out his hand for the productive people to fill it up."
Kind of like hedge fund managers and ninety nine percent of CEOs.
s b
Great, more taxes. Just what California needs.
The Singletaxonland
A "fine" is for doing something bad. A "tax" is for doing something good.
When and if the recapture of the Rental value of Land is implemented it would be considered a "user fee" for access to land. Land was not created by anyone in California nor anywhere else. Land is part of the Commonwealth.
No one advocating the ideas of Henry George want to increase taxes. They all want to reduce taxes punishing productive "good" behavior. Yes, reduce or eliminate disincentives to economic growth.
This is accomplished by shifting the burden off the economy and applying the levy to land value.
s b
This idea is ridiculous, which is why it was never implemented. It failed every time it was introduced. There's a reason for that. Even the author concedes: "Instituting land-value taxation in one fell swoop would cause the value of real estate to plummet, an outcome few would applaud." I mean seriously, the author of this post has no clue what she's talking about and lacks any expertise to opine. She's speculating - there isn't a single current discussion of this issue in Sacramento. A Columbia economist is proposing this. Which figures - this post appeared in the NYT.
The Singletaxonland
This idea of recapturing the rental value of land started with the originators of the term "Laissez Faire". They were the French Physiocrats. Adam Smith who wrote the tome on Capitalism agreed with these Physiocrats. There were others from Thomas Paine, John S. Mill, Henry George, along with leaders on the left and right of the political spectrum.
Where LVT was implemented it was successful and did not cause real estate to plummet. In fact, the most successful economies derive revenue from land.
The reason LVT is not popular among legislators is the privileged who benefit from the destructiveness of the
economy own them.
eight arms
Land is an input of production.
Elizabeth Lesly Stevens
Posted below, with permission, is a reader comment emailed directly to me:
Thank you very much for your article on Henry George. It was surprising and wonderful to find it in the paper yesterday! As you point out, land-value tax is a great idea, but extremely difficult to implement. A possible alternative is to extract community benefits at the time of entitlement, when land value increases as a result of public decisions, such as rezonings, to recapture, as they say in Europe "unearned increments in land value."
Nico Calavita
Elizabeth Lesly Stevens
And again, a reader comment emailed to me...posted here with permission:
I was delighted to see your recent article mentioning Henry George. Any mention of the ‘Prophet’ and his Single Tax is always welcome!
I do hope you will not be offended if I make one or two points!
The principle of LVT is that land value is created by the community and should therefore be returned to the community. Nothing can be fairer than that. This would not only leave labour and capital free of the burden of taxation but also provide the revenue required for public services and infrastructure.
Under the present system, taxation is raised on wages, profits and savings to build public facilities. These facilities increase the value of the surrounding land and enable landowners to increase the cost of the selling price and rent. The public pays twice; the landowners get a profit from doing nothing.
So when in paragraph 3 you say: ‘Just a confiscatory tax on land’ it creates an impression that LVT is in some way bad. LVT does not take anything from anybody that they have produced or earned by their own labour. It is a fair way of returning to the community the value the community has created.
And when you say “Georgism,” as its single-tax principle is known, would be devastating for real estate speculators and large landowners, it is important to realise that these real estate speculators and large landowners have been taking (stealing) the land value that the community create for years. We have a saying over here “What does the Duke of Westminster do for the rent he collects from his hereditary estates in Mayfair and Belgravia?” Answer – nothing!
There are many more aspects of LVT that would be beneficial to the community – including the fact that LVT is the one tax that cannot be passed on in higher prices, but you may already be aware of this.
And finally, when you say but proponents say it would be painless for most everyone else - the major benefit of LVT would be that taxes on wages, purchases, sales, savings, etc, could be progressively reduced and eventually abolished. This would provide the whole population with more spending power and create demand for goods and services, providing the stimulus to prosperity that all economies are so desperately in need of.
There are many UK societies that support Georgism, and you may like to look at www.landvaluetax.org from time to time. I have just written a short piece on the opening of the Hindhead Tunnel that clearly shows the result of tax funded infrastructure on land value and rents, and I also write light hearted pieces under the Dodgy Dossier section.
With Kind Regards
Michael Hawes
eight arms
You shouldn't tax managing partners because they would not have the incentive to create jobs. HA HA HA HA HA HA HA.
Dan Sullivan
The notion that California can tax commercial real estate and continue to undertax homes is not based on reason, but on "the politics of least resistence." California's economy was destroyed by the undertaxation of real estate, leading to massive speculation. Taxing everything but residential real estate would merely focus speculation on residential property, making the price of California housing even more ridiculous than it is now.
Inflated real estate prices destroyed California generally, but it bankrupted home buyers. People have to get it through their heads that there is no such thing as something for nothing. I have no doubt that a proposal to single out commericial real estate for taxation has a great chance of passing. As Clarence Darrow once said, people almost never do the right thing until everything else has failed.
Many people will be hurt by this propsosal. While it will help the existing home owners, it will screw future home buyers even worse that the current Prop 13 stupidity.