patrick.net

so what's the solution?

i think it's to distinguish between income from productive activity, like work, and income from non-productive rent seeking

and publicly funded campaigns so that the 0.1% can't continue to simply buy laws.

Hmmm yeah that seems to be the case when govt influences the economy by printing money, lowering interest rates, creating a volatile stock market, raising taxes while creating loopholes(thanks lawyers) and otherwise creating mass incentive for passive investment rather than promoting business which can create jobs requiring skill.

The solution is to raise the taxes on capital gains, and include rental income as short term capital gains, with only the first rented unit free of the special tax ("Grandma's Bungalow Exemption").

California would never have a taxation problem again; developers would pushed to build affordable for modest buyers.

so what's the solution?

i think it's to distinguish between income from productive activity, like work, and income from non-productive rent seeking

Exactly. That is the solution.

All rent-seeking functions should be performed by the state and the rental income should be used to pay for all government expenses that aren't paid by fees for services.

Here are a few of the reforms I think our society should pass. Granted, I doubt Americans even remotely have the political will to pass any of these reforms, but that's another matter.

Reform 1: Capital Gains of Non-Land-Based Assets

This reform is for the capital gains of everything that is not tied to land. The things not covered are real estate, mineral rights, oil/gas and other natural resources rights, and anything else that is intrinsically tied to land.

Set the capital gains tax to T = 1.00 - r * m where m is the number of months an asset is held and r is a reduction rate, typically 0.01.

Following this rule, any asset held less than a month would be impossible to sell for a profit because the tax rate would be 100%. This would end microtrading. This formula would also end flipping and speculation as neither would be profitable.

At the same time, this formula would strongly encourage long-term investment as any asset held for more than 8 and a third years would be tax free. You would have effectively an unlimited ROTH IRA with the freedom to sell part or all of your portfolio before retirement.

Reform 2: Capital Gains of Land-Based Assets

T = 100%

All appreciation of real-estate and other land-based assets are taxed at 100%. It is impossible to make any money flipping property or speculating. The cost basis for calculating this tax is the sales price of the real estate plus any money put into improving the real estate, but not maintenance cost.

This, together with other reforms, will prevent real estate from being prohibitively expensive and allow for better use of a limited resource.

On the plus side for owners,
- it will cost less to become an owner
- taxes will be less (due to other reforms below)
- the state can buy your real estate so you never have to pay a commission or wait for a buyer, so you can move easily.

Reform 3: Rent-Seeking Ban

Make it illegal to rent property. All renting, whether houses, apartments, or commercial buildings, is done by the state. The rent will be cheap because it will be based on the following formula

rent = costOfUpkeep + costOfTaxes

That's it. No profit taking. I'll go over the cost of taxes in the next reform, but an apartment that currently costs $1200/month to rent will cost something like $300/month.

The problem with allowing rent-seeking is that it drastically increases the prices of the goods being rented, in this case land. The great number of landlords makes it harder for renters to become owners and this greatly decreases the efficiency of the economy as money spent by renters on rent isn't spent on other goods and services that come from productive activities. And ultimately, landlords aren't renting property but rather land that neither they nor any of the previous "owners" created.

Reform 4: Land taxation

tax = totalSpending * shares / totalShares

Taxes are calculated based on the total spending at all levels (federal, state, and local) and the total number of shares, defined below, that a person owns based on the land he owns. Let's consider local taxes only for simplicity's sake, but this does generalize to taxes at all levels and even owning property in multiple tax jurisdications. I'll omit that complication from this discussion so that this reform is too difficult for most people to understand.

Let's say the total spending of a city is $100 million in year X. Let's say your land holdings constitute 10 shares (I'll show how shares are calculated next). Let's say there are 100,000 shares in the tax jurisdiction. Your taxes would be $100,000,000 * 10 / 100,000 or $10,000. A person with 2 shares would pay $2,000.

Under this formula, the total tax basis is exactly equal to total spending. There will never be a short-fall or government debt. Individuals will get a tax bill that outlines where every single penny of their tax dollars go. People vote for taxation levels by voting for what the government spends money on.

Shares are calculated based on
- the amount of land owned
- the value of the land owned
- a standard unit size U

For this example, let's set U = 0.25 acres, a reasonable value. We can, of course, tweak this value.

First, the land you owned is ordered by least valuable lot to most. Then, for each unit of land, in our case 0.25 acres, a contribution to your shares is calculated by

s[i] = (valueOfUnitOfLand / averageValueOfLandInTaxJurisdiction) * GreedFactor(i)

where GreedFactor is the function G(i) = i and returns 1, 2, 3, 4, 5, 6, 7, ... successively. The more land you own, the higher the greed factor and the marginal taxes on land. The most expensive land is charged the highest greed factor.

Also, fraction of a unit of land are fractionally adjusted. For example, if you owned 0.2 acres, the formula would be s[i] = (0.20 / 0.25) * (valueOfUnitOfLand / averageValueOfLandInTaxJurisdiction) * GreedFactor(i). Only the last unit of land would be fractional.

This will kill land hording and strongly encourage the most efficient use of land. It will also allow the public resource of land to be used in the most socially just manner. Small people won't be squeezed out of handing a little bit of land.

For people who live in apartments or condos, the land ownership is calculated as
landOwned = (surfaceAreaOfApartment / surfaceAreaOfGroundUnderApartment) + (surfaceAreaOfCommonGrounds / numberOfUnitsInCommunity)

Using this reform, living in an apartment or other small dwelling will be damn cheap. Living on a large piece of property would be expensive. However, no one is taxed on the building itself, just the land used because the land is a public resource whereas the building is not. This will also encourage building the best building while not wasting any land. Things we want to encourage are not taxed while things we want to discourage are.

Now this may sound too complicated for the average person to calculate his taxes, but he doesn't. Under this system, when you are deciding to buy a property, you just click a button and the system calculates what your new taxes will be and compares them to your current taxes. It's instantaneous.

In contrast, in many places like Florida, you have no idea what your taxes will be until after you buy because of policies like Save Our Homes that make your taxes higher than what the previous owner paid.

Of course, there will be major political opposition to any of these reforms as parasites will lose their rent-seeking revenue streams and have to actually produce wealth like the rest of us. However, under this system eventually everyone will be better off because there will be far less waste and far more of the virtuous cycle of productivity and consumption.

thunderlips11 says

The solution is to raise the taxes on capital gains, and include rental income as short term capital gains, with only the first rented unit free of the special tax ("Grandma's Bungalow Exemption").

California would never have a taxation problem again; developers would pushed to build affordable for modest buyers.

Just eliminate loopholes and deductions and you have the same result.

Landlords being able to take deductions for vacant units at an amount equal to market rent is absolutely insane.

bgamall4 says

Too totalitarian.

How so?

bgamall4 says

Some people need to sell an asset they just purchased out of distress.

They can still do so, but if the asset is land-based they only recover the cost of the asset, not appreciation. For stocks, bonds, and other non-land-based assets, capital gains goes down to zero percent if the asset is held for a little over 8 years. High short-term capital gains prevents bubbles, microtrading, and diminishes most fraudulent activity like insider trading. Crime is most attractive when it's fast and easy.

This solves the problem of "r > g" which means that the return on capital gains is greater than the return on productivity. Since the rich own most of the capital, this means that the rich accumulate wealth faster than everyone else, which in turn means that rising income inequality is inevitable and inescapable poverty because a primary feature of the economic system.

Under the reforms I propose, necessities like shelter become cheaper and luxuries become more expensive. This is a good thing for both the poor and the middle class. And there are greater economic incentives to produce rather than play zero-sum games.

so what's the solution?

Don't feed the sharks. Be selective where you shop, and don't buy stock in public companies that dominates industry verticals.

We need a national policy of businesses sustaining instead of having to grow. I think if you own a company that you gotten investor money from.
You shouldn't be able to expand and grow until you have exhibited clearly to a body that first you need to grow for the health of your existing business. Then that you can grow without hurting existing businesses, the new location wont close down in a month, year or two. The quality of the jobs the company is creating vs to the quality of the jobs they may destroy. And generally that their 401K investors, wont lose their money while corporate big shots makes lucrative deals for breaking soil, regardless of the new location succeeds or fails. Often big companies will build right across the street, just to kill off a competitor. Then close that location because it competed with their other location not so far away. The building at that point is a Real estate asset for a sister company that doesn't benefit the (Burger brand) stock holder at all. That company will post a dismal loss, while the other company will post a huge gain, having acquired new commercial property to lease out. Which is the last thing we need to end the straw company manipulation that goes on this country in plain sight behind the regulators backs.

dodgerfanjohn says

Just eliminate loopholes and deductions and you have the same result.

Not true. The problem is that the rent-seeking tax (capital gains) is lower than the working man's tax (income tax).

p>dodgerfanjohn says

Landlords being able to take deductions for vacant units at an amount equal to market rent is absolutely insane.

Agreed. And if they can't rent it their asking price is by definition ABOVE the market price.

Dan8267 says

Here are a few of the reforms I think our society should pass. Granted, I doubt Americans even remotely have the political will to pass any of these reforms, but that's another matter.

Do you have a reference for this -- or did you design the described taxation regime yourself?

Mr Happygoluckofus says

You shouldn't be able to expand and grow until you have exhibited clearly to a body that first you need to grow for the health of your existing business. Then that you can grow without hurting existing businesses, the new location wont close down in a month, year or two. The quality of the jobs the company is creating vs to the quality of the jobs they may destroy. And generally that their 401K investors, wont lose their money while corporate big shots makes lucrative deals for breaking soil, regardless of the new location succeeds or fails. Often big companies will build right across the street, just to kill off a competitor. Then close that location because it competed with their other location not so far away.

Why do you hate free enterprise so much :-)? Seriosuly, Captain, I think you are schizophrenic socialist whose other and dominant personality is that of a rabid libtertarian.

justme says

Not true. The problem is that the rent-seeking tax (capital gains) is lower than the working man's tax (income tax).

I would argue that rent-seeking shouldn't yield private profits because its inherently counter-productive. However, I do not consider most capital gains to be rent-seeking. There is overlap, but getting rent from ownership of land, an inherent public resource, isn't the same thing as investing in a company and getting returns.

I would say that the stock market, bond market, and banking system need structural reforms as well, but that issue can be handled separately from land and natural resource rent seeking.

justme says

Dan8267 says

Here are a few of the reforms I think our society should pass. Granted, I doubt Americans even remotely have the political will to pass any of these reforms, but that's another matter.

Do you have a reference for this -- or did you design the described taxation regime yourself?

Some of the ideas behind my reforms were independently invented before I was born and fall under the umbrella of thought called Georgism. However, the specific reforms I described are my own design and not elements of Georgism, although the philosophical basis are very similar. Typically Georgists propose a flat land tax.

My reforms are more sophisticated, refined, and complex. Of course, Georgism was envisioned in the 19th century as a result of seeing the failings of capitalism. My ideas are 21st century ones that would require computers to implement. I would imagine 19th century Georgists would approve of my ideas if they gained understanding of what modern information technology can do easily.

Do note that I don't propose using the land tax for all revenue, but just most revenue. The land tax would replace all current income and real estate taxes. The captain gains tax isn't a Georgist idea, but I believe it works well in conjunction with the land tax. I would still use service fees or gas taxes to pay for metered services like use of roadways or lighthouses.

Dan, here is how your solution to all the problems looks like.

Dan8267 says

All rent-seeking functions should be performed by the state and the rental income should be used to pay for all government expenses that aren't paid by fees for services.

That worked well in russia right up until the 1989.

Ok I'll bite on your nonsense. If there can be zero profit from the sale of real estate why would anyone ever build a building or even buy the land at all? The government will build all the buildings? That worked well in russia right up until 1989.

FortWayne says

Dan, here is how your solution to all the problems looks like.

And an empty chair looks like Obama to you. That says more about how delusional you are than anything else.

bob2356 says

That worked well in russia right up until the 1989.

My proposed forms are not even remotely an implementation of communism. In fact, free enterprise is increased under my reforms because the only way to make a living is by actually producing wealth instead of sitting on your ass siphoning off other people's productivity. If you mistake this for communism that indicates you have no understanding of economic systems.

Too much of our economy is composed of zero-sum games and rent-seeking that drag down the economy. Both have the exact same effect on economy as high taxes and for the exact same reason. Rent is simply a tax paid to a baron rather than a government. The only difference is the government provides something back to society whereas the baron buys a yacht.

bob2356 says

If there can be zero profit from the sale of real estate why would anyone ever build a building or even buy the land at all?

1. Because they want to live in a house they have control over with a yard they can landscape.
2. Because they want more room than a three-bedroom apartment.
3. Because they want space from their neighbors.
4. Because they want to run a business in a commercial building.

There is value in ownership beyond flipping property. What is lost by not being able to flip or rent out is gained by lower costs in renting or buying. The playing field becomes even regardless of when you are born.

Also, government can build commercial and real-estate rentals and/or buy existing ones to maintain a balance of supply and demand. Centralized planning is exactly what big corporations do. It doesn't magically become evil because government does it, or we'd have to disband the military.

Only a small minded, and small penis, person like you would call promoting economic reform whining. Here, I'm thinking about the well being of hundreds of millions of Americans and you are still obsessed with petty jealousy. Being who you are is both your crime and your punishment.

Dan, what makes you think government controlled housing will make our society better off? Show me examples of where it actually worked? Which countries?
Building homes and anything related like renting in the hands of private ownership creates Economic efficiency. The government is the most inefficient entity you can ever create.
Communism by any other names, fails just as much.

Strategist says

Dan, what makes you think government controlled housing will make our society better off?

Once again, you miss the point. You obsess so much over it being "government controlled" when that's merely an implementation detail. Economics is not about whether government runs a service or a business does. Economics is about HOW the business is run, not who runs it. You're so obsessed over state-vs-private religious dogma that you cannot even consider the mechanism being implemented. The damn thing could be ran completely by computers owned by a troop of monkeys if it's implemented correctly.

Strategist says

Show me examples of where it actually worked?

That which has never been done before can never be done. In 1900, no one had ever successfully flown a power craft. Therefore, airplanes are impossible. No one had ever gone into space, therefore the moon landing was impossible. No one had ever created a world-wide network of computers. Therefore the Internet is impossible and you must not be using it right now. All your experiences on Pat Net have been the ravings of a mad man.

How foolish is it to limit society to the failures and short-comings of the past.

Strategist says

Building homes and anything related like renting in the hands of private ownership creates Economic efficiency.

Feel free to prove that.

Strategist says

The government is the most inefficient entity you can ever create.

That too.

Just because conservatives are bad at government doesn't mean government has to be bad.

If the government is so god-damn bad at god-damn everything, we should get rid of the military. That's the god-damn biggest part of the government. Does our military suck as much ass as your statement implies?

Strategist says

Communism by any other names,

The fact that you think my reforms are an implementation of communism shows you know nothing about economic systems including communism and capitalism. You might as well say the U.S. is a communist society because the roadways and sewer systems are public.

Ironman says

I like to touch young children and farm animals.

See, it works both ways.

Dan8267 says

Strategist says

Show me examples of where it actually worked?

That which has never been done before can never be done. In 1900, no one had ever successfully flown a power craft. Therefore, airplanes are impossible. No one had ever gone into space, therefore the moon landing was impossible. No one had ever created a world-wide network of computers. Therefore the Internet is impossible and you must not be using it right now. All your experiences on Pat Net have been the ravings of a mad man.

How foolish is it to limit society to the failures and short-comings of the past.

What a totally bogus argument. You are just bullshitting. In 1900 the technology for planes were just being invented. Houses have been built for over 10,000 years, governments have been around longer. Show one example where your plan has worked.

Dan8267 says

bob2356 says

If there can be zero profit from the sale of real estate why would anyone ever build a building or even buy the land at all?

1. Because they want to live in a house they have control over with a yard they can landscape.

2. Because they want more room than a three-bedroom apartment.

3. Because they want space from their neighbors.

4. Because they want to run a business in a commercial building.

So anyone who wants a new house has to be their own general contractor? Yea right. Obviously you've never done a construction loan. Come to think of it how does a subdivision get done in your grand scheme? No profit, no one is going to do it. Oh I forgot, the government is going to parcel out all the land on a fair and equal basis. Whatever you smoke I want some.

bob2356 says

What a totally bogus argument. You are just bullshitting.

It would seem that way to someone lacking the intelligence to follow the argument.

Dan8267 says

bob2356 says

What a totally bogus argument. You are just bullshitting.

It would seem that way to someone lacking the intelligence to follow the argument.

There wasn't an argument, you only believe you made an argument. If you believe that something that hasn't been done because the technology doesn't exist yet is equivalent to something that hasn't been done even though the technology has existed for 10000 years then there is no point debating it with you.

Looks like someone is lacking the intelligence to respond. Why after 10000 years of building houses (as opposed to things that haven't been accomplished yet like flight in 1900) and having government hasn't anyone tried your plan, much less tried it successfully? Maybe if we wait for say another 10000 years it will happen?

i think it's to distinguish between income from productive activity, like work, and income from non-productive rent seeking

The exodus of manufacturing beckoned passive and non - productive work. The economy has been propped up by financial schemes, but as you indicate their is a great deal of malinvestment.

Having a strong and broad R&D and Manufacturing capability would enable more productive work. The origins in housing bubbles, the stock market crash of 1999 and the current QE all have their roots in malinvestment.

Dan8267 says

Just because conservatives are bad at government doesn't mean government has to be bad.

If the government is so god-damn bad at god-damn everything, we should get rid of the military. That's the god-damn biggest part of the government. Does our military suck as much ass as your statement implies?

I was just wondering this. When money goes to a Government employee (or service member), don't they spend it in the larger economy? So the only logic I can think of, is that somehow when a veteran spends it it circulates better than if a DMV employee spends it, which seems ludicrous.

But then, I don't see how Government spending is inherently worse than private sector spending. Perhaps the rightwing can show us? Or do we accept it as a truism like we do that Jeevis was born on Christmas?

bob2356 says

There wasn't an argument, you only believe you made an argument.

You can assert that George Washington rode a dinosaur while fighting the Nazis in the American Civil War as many times as you like. It doesn't make it true.

The argument I made is that PCM can perfectly represent any recording that a vinyl record can. If you don't realize that this argument was made, that's due entirely to your lack of reading comprehension skills. Your failure to see this argument and its justification is on you and you alone.

CL says

So the only logic I can think of, is that somehow when a veteran spends it it circulates better than if a DMV employee spends it, which seems ludicrous.

Generalize this statement to all of conservative economic dogma and you will have a fundamental truth.

There are two fundamental flaws in capitalism that are intrinsic features of the economic model. The first is rewarding only bargaining power, not productivity. The second is concentrating wealth in the hands of a few individuals which cause the virtuous cycle of productivity and consumption to come to a halt. The reforms I presented above address, but do not completely solve, both of these two flaws.

Greed is not good. Productivity is.

CL says

I don't see how Government spending is inherently worse than private sector spending.

It's not. Wasteful spending, whether public or private, is bad. Useful spending, government or private, is not.

Conservative economic dogma says that government spending is by definition wasteful and private spending is by definition not. This is like saying giraffes are by definition taller than cats. Conservatives can never justify their dogma with empirical evidence. When questioned, they get offended and call you a communist. Economics is the new religion. It must be taken on faith and anyone who questions dogma is a heretic. You can see this attitude in every post they make.

The alternative, which I advocate, is to treat economics as an engineering discipline subject to the scientific method including reproducible and verifiable results. No religion, no cultural or nationalistic preferences should be considered when evaluating economics. Only math, logic, and empirical verification counts.

Furthermore, economic systems are like underwear; you change them whenever you need to. There is no ideal economic system, just an optimal economic system for a particular environment. Anyone who states that economic system A is the best is simply a fool. A wise person says that economic system A is best for conditions c[1] through c[n].

Conservatives are also extremely hypocritical about all their dogma. If government spending is wasteful, then the U.S. military spending is the most wasteful thing about our economy. Yet conservatives love military spending, so they completely ignore their dogma for that. And since military spending does not produce capital or consumer goods, it is highly wasteful compared to programs like Social Security and welfare in which people spend the payments on capital and consumer goods.

There are two kinds of ways of looking at the universe, rational and irrational. The rational person questions everything, seeks evidence and understanding, and is willing to change his mind if evidence gives him a reason to. The rational person is a skeptic; he demands to be convinced.

The irrational person accepts dogma, bases his beliefs on his feelings and cultural preferences, believes what his parents and grandparents did because that's the way he was brought up, considers questioning to be an attack on him and his culture, cannot justify his beliefs and is insulted when asked to, and will not change his mind on anything because doing so is an affront to his culture. The irrational person is faithful; he refuses to be convinced.

Faith is always a bad thing. It accomplishes no good that is not more easily and reliably accomplished through reasoning, and it prevents the correction of mistakes and bad ideas.

Dan8267 says

There are two kinds of ways of looking at the universe, rational and irrational. The rational person questions everything, seeks evidence and understanding, and is willing to change his mind if evidence gives him a reason to.

"irrational" people are usually quite understandable once you get their subtext. the irrational overt speech is a small part of their logic. the larger part is submerged and only hinted at by their conclusions, which give them some emotional satisfaction they are not going to get from putting everything out in the open.

so you're just never going to get anywhere with them by keeping everything out in the open. you have to play along in some way with their subtext, which is usually something so politically incorrect or embarassing that they simply cannot make it part of the argument. and they themselves may not even be consciously aware of why they feel so much better when they come to certain conclusions.

the subtexts are not about objective facts, but instead about belonging to a team, or fear of loss, intense disgust at gays, or some other emotional topic. religion is a perfect example. if the rational conclusion is that they are going to die and be dead forever, never to see family and friends again, then the conclusion is so unacceptable that various "proofs" of their religion start to seem logical to them. aggressively pointing out flaws in their logic is taken as an attack on their life! so they're just not going to agree with you, because then they're dead.

CL says

But then, I don't see how Government spending is inherently worse than private sector spending. Perhaps the rightwing can show us? Or do we accept it as a truism like we do that Jeevis was born on Christmas?

that's easy:

"government spending" is a code phrase for "taking white people's money and giving it to lazy black people and illegal immigrants so they can party and reproduce while we work". this feels bad.

but "military spending" is a code word for "protecting me and my family from foreign crazies". this feels good.

so it's not about government spending per se. it's about "is it good for me and my people?"

but open speech about lazy black people or foreign crazies is politically incorrect, and we live in a place and time where political correctness is enforced ruthlessly. being politically incorrect can cost you your job or get you kicked out of a university. witness the attempt to get donald trump to apologize on tv for his phrase "anchor babies". when he flat-out refused to apologize, he became an instant hero to all the people who have been shamed for their actual opinions, and he became more likely to become president. trump is a reaction to the suppression of free speech.

"irrational" people are usually quite understandable once you get their subtext.

Subtext is just another word for dishonesty. If a belief is good, you should be able to justify it openly and clearly. If you can't, that should tell you to reject the belief.

but "military spending" is a code word for "protecting me and my family from foreign crazies". this feels good.

As well as foreigners who fight back when we steal their natural resources. Only white Christian Americans have property rights.

Relative gains folks. Going from 5 people in a bark-covered hole in the ground drinking river water with horses shitting on dirt roads inches from your birchbark roof to 5 people living in a 600 sq ft Steel, Cement, and Brick Kruschev Apartment with running water and a heating system that turns the place into a sauna, served by light rail running right outside the building door, is a major promotion over the course of 40 years. Especially when the population increases by a vast degree, as well as mass urbanization to boot.

Going from a 600 sq ft tenement with one cold water faucet and bathroom shared between 5 apartments to a 1000 sq ft ticky tack shack is also a step up, but not to the same degree.

Dan your problem is that you think you know what others should have or what others want, when in reality you don't know any of that. You just know what you want, not what others desire. And your methods would bring communistic reforms, not free market anything. You really haven't proposed any solutions other than to just take away more from others and redistributing it. That creates nothing, pie is still same size, you just want other peoples stuff.

Sharing knowledge is the entire purpose of an Internet forum. Anyone who looks down on the exchange of ideas and knowledge is an idiot.

Dan8267 says

As well as foreigners who fight back when we steal their natural resources. Only white Christian Americans have property rights.

Dan you seriously have no idea what you are talking about here. You are letting your hatred for Christianity cloud your judgement.

FortWayne says

Dan you seriously have no idea what you are talking about here. You are letting your hatred for Christianity cloud your judgement.

We gonna take this land from them Goddamn Pagan Dirt Worshippers and make this the City on a Shining Hill.

jazz music says

Oh Dan I always bristle when I hear engineers justifying sociological ends according to engineering values and efficiency

Engineering is not a cold-hearted discipline concerned only with efficiency. Engineering is about understanding a problem completely, examining all possible solutions, and choosing the best outcome based on values. Rationality is never a vice if your values are good.

thunderlips11 says

Wayne thinks that the genocides of the Native Americans by his ancestors was a good thing. Manifest destiny and all.