City Governments Could Make Revenue-Sourcing and Land Use More Efficient by Taxing Vacant Lots and Abandoned Properties

 

Table of Contents

Part I: Preface

Part II: Letter
1. Introduction to Georgism
2. Understanding Georgism
3. Land Value “Taxes” as User Fees
4. The Waukegan Budget
5. Implementing L.V.T. on a City-Wide Basis
6. Why Georgism?
7. “An Economic Miracle”

Part III: Post-Scripts

Content

Part I: Preface

     I wrote the following letter to Waukegan mayoral candidate Ann Taylor, in an e-mail, on April 2^nd, 2021.

     The letter outlines why – and how – I recommend that the City of Waukegan implement Henry George’s Land Value Taxation to solve the city’s budget issues.
     I provided Taylor with the three images at the end of this article, as appendices to my message.

     The Democratic primary for the 2021 Waukegan mayoral race takes place this coming Tuesday; on April 6th, 2021.

Part II: Letter

1. Introduction to Georgism

     I've been trying to bring the Green and Libertarian parties closer together, with the economic school of thought known as Georgism, named for Henry George. Libertarians would like it because it would simplify taxes and free production, while Greens would like it for its focus on maintaining land and environment in good quality.

     Basically Georgism would involve a tax on unimprovement of land; through what's called Land Value Taxation. This would involve getting rid of sales taxes, income taxes, [and] investment taxes (because they tax production). Taxing production, income, and sales, means we'll get less of those things, meaning less tax revenue will become depleted over time. This will make it necessary to find other revenue sources, preferably ones that don't deplete themselves.

     The current taxes on production (and harmless economic behaviors), would be replaced with taxes on waste and destruction. These taxes would primarily target the despoilation of land, speculation on land prices, and on land hoarding.

     Economist Art Laffer theorized, in his description of the "Laffer curve", that people will stop producing as much if you tax them at too high a rate. Laffer was correct that this principle applies to income and production, but we must go further, and apply the idea to the taxation of land as well.

     If you tax something, you get less of it. So if we tax income and sales, we will get less of those things, because people will avoid the behavior in order to avoid the tax. If we tax the waste and destruction of land, then people will stop wasting and destroying land, in order to reduce their tax burden.

     Land Value Taxation could be described as a tax, but it could also be described as a use fee, or as a fine. It could help to think of L.V.T. as a fine and a tax at the same time. L.V.T. could function as an intentionally punitive tax.

     This may result in self-depleting revenue streams from land taxation, but that will only happen if the new taxation scheme is successful at deterring unwanted behaviors. Furthermore, the revenue decreases will reflect the fact that government budgets can be responsibly reduced. Once stolen rents have been captured by the city, and redistributed to the community in a way that solves the city's problems, the need for government will decrease, and the need for more tax revenue will decrease along with it.

2. Understanding Georgism

     There are several ways to think about Georgism which helps us understand it. First are the slogans: "Tax land, not man", "Tax bads, not goods", and my own "Tax destruction, not production".

     Another is the idea that the tax on unimproved land value would function as a fee, paid by the renter of the land, as a user fee to compensate the community for the cost of protecting or insuring the property. Another is that the value of the unimproved land can be calculated by estimating either the cost to the community to protect it, or else the cost of restoring the land to its original natural state.

     Basically Land Value Taxation is a tax on unimproved land value, rather than on improvements. Improvements are things like additions we make to our houses, but more generally includes all houses, buildings, labor and capital, and mixing of labor and capital. All of which occurs on top of the land, out of which all natural and mineral resources, and land and water, come, to be mixed together and refined.

     When land is cheap, labor and capital become cheaper, and it becomes cheaper to mix labor and capital (which is the essence of all production). So when land is taxed in a way that is designed to minimize and punish waste and the pollution of the land, and businesses are taxes in a way that is designed to minimize pollution, we will have cheaper production with less harmful health effects associated.

     With less harmful health effects, medical costs will go down. Medical costs will have also gone down because taxes on doctors' and nurses' income will go down and be eliminated, and because sales taxes on medical goods will also be eliminated. Profits from sales of medicine should be taxed, however, if the seller is a monopoly, because that is not an ordinary sale.

     There are a lot of ways to explain Georgism, and lots of types of taxes may be discussed in the process. However, Land Value Taxation was formerly known as “the Single Tax on land”, so the fact that land despoilation and unimprovement can be taxed in many different ways, complicates things a little bit,

     Establishing a Georgist economy would likely involve taxing land blight, fining all major polluters, taxing land speculation, taxing land hoarders, taxing profits of monopoly companies, taxing slumlords, and taxing abandoned construction projects. Also, imposing Pigouvian taxes, which are taxes on unnecessary transaction costs (like ATM fees).

     These may all seem like very different types of taxes, but they're all taxes on what are, basically, different forms of theft, but more specifically theft of land value (or theft of some other form of value, through the use of the benefits offered by unnatural monopoly power).

3. Land Value “Taxes” as User Fees

     Georgism is not exactly a pollution tax, because Georgism wants to tax land despoilation, which is not just environmental degradation of the land, but any and all forms of damage and value degradation of the land. To be clear, allowing land to stay at the same level of quality, would not be taxed, nor would improving it; but allowing the land to decrease in quality would be punitively taxed.

     Land Value “Taxes” (or fees) would function as a user-fee-based system, allowing the community to transact with property owners (later, renters) on mutually beneficial terms. Nobody should get away with profiting at the community's expense.

     When land value is stolen from the community - and not reinvested into the community government and/or spent by the people in markets - then the cost of producing stays high. The cost of producing will stay artificially high, as long as we continue to tax environmentally harmless productive activities (such as income from labor, sales and purchase and consumption, and investment that doesn't come at public expense). We can replace those taxes, with fees and fines and liens against people who allow land to fall into disrepair, decline, and blight.

     Basically, I advocate keeping user fees and utilities taxes, and funding the government mostly through Land Value Taxation and user fees, because Land Value Taxation is a form of user fee. It is a fee, paid by the land renter (formerly owner) to the community, for protecting and insuring the given parcel of land.

4. The Waukegan Budget

     I looked at the preliminary 2021 budget for the City of Waukegan, and noticed some issues. First off, I think the figure at the end, giving $185,154,700 as the budget total, is about $14 million too high. I say this because I believe that the figures $6,077,000 (the property tax for the firefighters' pension fund) and $8,535,000 (the property tax for the police pension) are doubled.

     I was only able to account for $171,683,000 in that budget. I'd like to speak to whoever does the budgets, about that. Unless you know what that is about. I have the document I'm talking about, it's from the city's website.

     [Note: That document is available at the following link: http://www.waukeganil.gov/DocumentCenter/View/4459/Proposed-2020-2021-Budget. I was referring to pages 41 through 56 of that document.]

     Anyway, I assumed that the city budget is $171,683,000 in total, and will remain that way for the next four years, for simplicity's sake. Then I broke down all the sources of revenue, and ranked them by total amount. I split them into "OK taxes" (including use taxes and fees, government's secure sources of revenue from investments and interest, and other acceptable taxes) and "bad taxes" on productive, harmless, voluntary activities (as well as fees for services for which the government gets paid but arguably doesn't provide any real service).

     The green spreadsheet image shows a suggested set of budgets from now to 2025, to phase-in Land Value Taxation while replacing taxes on production.

[Click, and open in new tab or window, to see in full resolution.

Note:

Not all of the totals, for the years 2022 through 2024,

add up to $171,683,000 as was intended.

This chart should be consulted for illustration purposes only.]

[Click, and open in new tab or window, to see in full resolution.

Note: This chart is based on the green spreadsheet shown above.
It shows how Land Value Taxes would be phased-in
while taxes on productive behaviors would be phased-out.]

     I could easily re-adjust these projections based on future budgets, and in anticipation of future growth of government. But if this tax reform works, then growth of government might no longer be necessary to solve the city's problems.

     I wrote this article explaining how Georgism could help Lake County in particular. It would certainly lead to wiser, more efficient land use, at the very least. Altoona, Pennsylvania still has Land Value Taxation. It has also helped Singapore use land area efficiently.

     http://www.lclp.org/articles/geolibertarianism/

5. Implementing L.V.T. on a City-Wide Basis

     If I were running for mayor, I would announce that income, sales, and investment taxes are no more; that user fees, taxes on the unimproved value of land, and voluntary contributions should alone fund the government.

     I see that there is a “Vacant Registry Fund” in the proposed city budget. If I were running for mayor, I would advocate that the Vacant Registry Fund, and its ability to register vacant structures and impose fines upon the owner, be expanded. I would expand this fund into a fund for the registry of vacant lots, abandoned buildings, and blighted lands” (or something shorter).

     In this registry, I would include all blighted and polluted lands, vacant lots, abandoned homes, incomplete structures, [and] halfway-done construction projects that are merely eyesores. Potentially, you could even include workplaces where virtually no useful economic activity is taking place, and slum apartments where landlords are doing virtually no maintenance work. All of these properties could be taxed justifiably under Georgism. Single-floor buildings, parking lots, and other wastes of area and economic potential, could be taxed as well.

     I would then announce that property taxes must be reformed, so as to begin taxing homes and economically active commercial properties at progressively lower and lower rates, while the actual owners of parcels of land are made into renters. Their taxes would be based on the quality of their land, rather than on their property value. Taxing land at a higher rate than buildings, is called split-rate taxation.

     If split-rate taxation, and the expansion of the Vacant Structure Register into a sort of “Vacant Structures and Lands Register”, turn out successful, then it's possible that the duties of this program could eventually be handed over to an independent, depoliticized, or quasi-governmental agency.

     I would recommend this, to protect it from profit motives and keep it a permanent program (to protect it from being changed by the fleeting opinion of narrow majorities). If administered as a non-for-profit cooperative corporation, the entity could be called a Community Land Trust (and community water and air trusts could exist as well).

     Such an entity could even operate on market principles, allowing the community to vote in online “artificial markets” to decide how much land parcels are worth. This idea is called Geo-Libertarianism.

6. Why Georgism?

     As long as property taxes remain in place, without reforming to Land Value Taxation, people will refrain from improving their property, for fear of higher taxes. Land Value Taxation would do wonders; in terms of simplify taxes, making taxes make sense again in order to restore people's trust in government, freeing people's entrepreneurial spirit, and allowing for the beautification of homes without worries about gentrification. It could also decentralize government, and potentially reduce antipathy between high-skilled and less skilled workers.

     Georgism would enable the community and the market to function as one and the same, by recouping – through redistribution - the costs of stolen unimproved land value which was stolen by speculators and land hoarders. This will bring about less government interference in the marketplaces for all goods besides land, which will in turn allow for the drastic simplification of taxes and work alike.

     Simplifying taxes - and eliminating the need for ordinary low-income working people (and everybody else who makes their money without profiting at public expense) to file income taxes - will help facilitate the balancing of government budgets, and help end public governments' financial crises.

     Solving those crises will help reduce the city's dependence on foreign governments for revenue, which usually carries with it a responsibility to implement certain policies which may not always be helpful, but are accepted begrudgingly in order to receive those funds. I would recommend replacing intergovernmental taxes, replacement taxes, and home rule taxes, with Land Value Taxation; because eliminating those taxes will help reduce the city's political and financial dependence on foreign governments. Becoming politically and financially less dependent upon the county and state, will help the City of Waukegan experiment more in regards to L.V.T..

7. “An Economic Miracle”

     Focusing on how to source revenue ethically and efficiently, would also help shift the focus, in budget balancing, from the “we need to tax X because we need to spend it on Y” model, to a model based on “spending money on Y may be necessary, but taxing X to fund Y is only acceptable if X and Y are related to each other, and if X is a harmful behavior that makes it seem necessary to spend money on Y in the first place".

     The closer we move towards a system where government can't tax or fine people unless they do something wrong (including harm the community's ability to make use of land and common resources), the closer government will come to honoring the principle enshrined in the Fifth Amendment and Thirteenth Amendment; i.e., that no private property shall be taken for public use without just compensation, and that no involuntary servitude (including rendering of income from labor) shall be required except in cases wherein someone has been convicted of a crime.

     If you help to implement these changes, people will say that what happened in Waukegan was an economic miracle. That's what they said about what 12 Pittsburgh suburbs did, when they experimented with LVT between the 1980s and 2000s. These towns' successes with LVT wasn't able to outlast the 2007-09 financial crisis, unfortunately; but they did see less land waste, less homelessness and unemployment, and more production, as a result.

     Economist Mason Gaffney says that Land Value Taxation could fully fund government by itself; as land constitutes approximately 1/3 of the economy.
     I'm not sure what level of Land Value Tax would be necessary here, however. More research, and experimentation, and consultation with the city's economic advisors, would be necessary, before determining that.
     In Australia, just a 6% tax on unimproved land value is recommended, to solve the country's budget problems, but that might not translate to the issues faced by a small American city such as Waukegan. 

     [Note: See the second post-script, at the end of this article, to read about why I recommend a 16% tax for Waukegan.]

     Here's a video about land use in Australia:

     http://www.youtube.com/watch?v=XL3n59wC8kk

     I can connect you to Georgist economists if you would like, I know a few through Facebook. One named Adam Jon Monroe lives in Chicago. He stresses that basic income and pollution taxes would not be part of a Georgist system, as Henry George supported a free market for everything except land (i.e., he supported free movement of labor and capital, and free markets and free trade for all things related to labor and capital).

     I'm at 608-417-9395 if you have any questions.

[Click, and open in new tab or window, to see in full resolution.
This image was not designed by the author of this blog.]

[Click, and open in new tab or window, to see in full resolution.
This image was designed by the author of this blog,
and previously appeared on this blog at the following address:
www.aquarianagrarian.blogspot.com/2014/11/georgist-economics-illustrated-with.html.]

[Click, and open in new tab or window, to see in full resolution.

This image was designed by the author of this blog,

and previously appeared at the following address:
www.aquarianagrarian.blogspot.com/2019/05/rent-profit-interest-and-usury.html]

Part III: Post-Scripts


First Post-Script, Written and Added on April 6th, 2021:

     In the above letter, I stated that I would like to end the city's sourcing of revenue from proceeds from rental income and capital leases, while phasing-in Land Value Taxation to replace it. I would like to amend that idea slightly; to the following.

     The following taxation powers, which the city currently has, should be combined: 1) the city's rent-charging and capital leasing powers; 2) its ability to impose liens; 3) its ability to charge taxes on hotels and motels; 4) its power to assess property taxes; and 5) its power to collect funds for a registry of vacant lots.

     The agency resulting from this union of tax powers could be named something like "the Land Tax Revenue Service" or "the Land Revenue Service". If it would be helpful, another agency could be created, to encapsulate all other sources of tax revenue.

     In order to bring the city's tax code in compliance with Land Value Taxation, the Land Revenue Service would then have to curtail the third and fourth powers mentioned above; by 3) restricting the levying of taxes on hotels and motels solely to unoccupied units which are in declining states of maintenance; and by 4) restricting the levying of property taxes to taxes on non-improvements rather than improvements.

      Such a "Land Revenue Service" - or L.R.S. - would eventually fund a Community Land Trust; a non-for-profit corporation that would manage land on behalf of the community. Once complete, a Community Air Trust and Community Water Trust could be created as well, to allow hydrogeographers and marine biologists and pollution experts (etc.) to find the specific agencies which are relevant to their particular interests regarding ecological preservation.

     But first, the L.R.S. would have to obtain databases of abandoned and vacant lots and buildings, and lands in declining state of economic and environmental value, in order to perform an adequate assessment regarding which lands can be taxed, and how much revenue can be gleaned from the taxation of despoiled and unimproved land value.

     Approximately $100 million in unimproved land value would be necessary to tax annually, in order to fund the Waukegan city government at its current spending levels. But Waukegan's approximately $1.9 billion G.D.P. - coupled with Georgist economist Mason Gaffney's observation that one-third of the G.D.P. is untaxed land rent - means that there is probably closer to $633 million in untaxed rent, generated each year, which could fund city services.

     In order for city governments to be streamlined, and their budgets made balanced and sustainable, the powers to tax property, hotels and motels, vacant lots, and rentals of government property, and the power to impose liens for non-payment of taxes, must all work together.

     They must work together so well that they become indistinguishable from one-another. They must be complemented, in sourcing the government's revenue, by fee-for-service models and utilities fees; again, until there is little discernable difference between the two, and it becomes clear that Land Value Taxation is a fee-for-service model.

     This must continue until government budgets are funded solely through different categories of Land Value Taxation, fee-for-service models, and voluntary contributions. This will allow participation in government services to occur on a maximally voluntary and free-market basis, allowing supply and demand to meet at a reasonable price, minimally affected by the economic activities of government.

     If successful, and if Land Value Taxation becomes so popular that support for it becomes nearly universal, then Land Value Taxation will be on its way to becoming a fully voluntary tax. It's not fully avoidable, though; but it's a tax that you can easily avoid, as long as you don't waste, hoard, or destroy public or common resources or socially created value that you yourself did not create.

     Does that sound like a fair deal?

Second Post-Script, Written and Added on April 8th, 2021

     Given Waukegan's 88,000-person population and its $21,500 income per capita, I assume that Waukegan's G.D.P. (gross domestic product) is approximately $1.9 billion per year.

     Georgist economist Mason Gaffney estimates that one-third of the G.D.P. is tied up in untaxed rent on unimproved land. If that is true about Waukegan, then I would estimate that there is about one-third of $1.9 trillion in untaxed land rents in Waukegan, which comes out to $633,333,333.33.

     The target amount which I provided for the Land Value Tax, in the fourth year of my budget proposal, was $102,500,000.00. That number is 16.1842% of $633 million (the value of land rent which is available to be taxed).

     This is why I would recommend that unimproved land value should be taxed at 16.1842% of its value, during the fourth and final year in the process of gradually replacing approximately 60% of government revenues with Land Value Taxes.

     I would recommend that, during the first four years, unimproved land be taxed at 4.04605% of its value; and then 8.0921% the following year; then 12.13185% the third year; and finally 16.1842%, where it should remain until the city decides that its overall budget should decrease.

     

E-Mail to Ann Taylor written on April 2nd, 2021

This article was first published to this blog
on April 3rd, 2021

Post-Scripts Written and Added on April 6th and 8th, 2021

Table of contents edited on April 8th, 2021