Without bankruptcy protection, a city that couldn’t pay bondholders
would be forced to raise taxes until it could. This happened to West
Palm Beach, Florida in the Depression and property tax rates rose to
42.5 percent of assessed value.
Here is more (interesting throughout) and I thank Chug for the pointer.
42.5% property taxes?
Heh, and see the property value plummet like a rocket assisted plummeting machine.
Defualts on debt are also possible and usually preferable to ridiculous taxes. Why should the mayor get a pension when he helped f things up so bad? and why should lending institutions be rewarded for lending to such irresponsible a**holes? If a city borrows irresponsibly then let them have no credit for awhile.
besides I thought Georgist weren’t neccessarily for huge property taxes…it was more about being for the elimination of ALL other taxes and ONLY having property taxes. Having 40% property taxes while maintaing sales/gas/income/FICA/sin taxes/inflation taxes is NOT Georgist at all.
Well, state governments, like California, and municipalities, as in California where there are constitutional property tax restrictions, are going to kill themselves because they are not making the tax increase and spending reductions together which are easy to make now, and difficult to do later. A tax increase with a spending cut works very quickly, and neither alone works very well.
42.5% of assessed values doesn’t tell us anything. There are places where assessments haven’t been updated in many decades — Sussex County, Delaware, is still using 1974 land assessments, which are a tiny — and more important, uneven — fraction of today’s values.
A logical tax on land value would be at a level enough to collect virtually all of the economic rent — about 5% per year — 20 years’ purchase, some would say. With market-based assessments, that could be a very substantial figure — enough to finance not just local and state government, but also to contribute to federal revenues. Sure beats a tax on wages or sales.
Doc, taxing land value fully doesn’t reduce land value at all. It still provides the same flow of income — but it gets diverted to public purposes rather than a private portfolio. Taxing it means that the land sells for next to nothing, and is no longer an object of speculation. Since speculators contribute nothing to the economy, and actually dampen it, I think we’d be far better off without them.
Can you help me understand your strange definition of the word “value”?
The land’s as valuable as it has ever been. It’s just that most of this value is transferred to the government, rather than to previous sellers. And if the LVT is implemented correctly (by offsetting other taxes), the price of land may actually rise at first, since existing taxes largely fall upon land values.
Really? Do elaborate
Russ R., could you elaborate on how speculation on land values contributes to the economy? What risks does it help transfer or price?
Can you help me understand your strange definition of the word “value”?
Value = the difference between the productive capacity of that unit of land and the productive capacity of land at the margin. Also known as the Rent of land.
Speculation. In most competitive markets, speculation performs a valuable social function. As you said, it translates future supply and demand conditions into the present. This is, in effect, societies way of planning ahead. A real world example would be that heavy rainfall in one region looks to destroy crops and cause a food shortage. Speculators drive up the price of grain in that region before it actually runs out, creating an incentive for growers in other regions to bring grain into the soaked region, thus averting starvation.
Speculation does not provide the same service in the land market for one simple reason: the supply of land is fixed for all intents and purposes. In the land market, speculative activity simply increase prices without providing a social service. Worse yet, speculative activity in the land market also contributes to many other social and econommic problem, including overvaluation of land itself. Check out Mason Gaffney’s new book “After the Crash.”
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