Prosper California Seeks Rent Revenue Solution

Frank Walker, an attorney from Chula Vista California, is bringing righteous political energy to bear on the State of California’s economic and financial woes. Walker’s campaign, called “Prosper California,” calls for eliminating all the state’s corporate income taxes and sales taxes, removing the personal income tax from everyone earning less than $150,000, exempting improvements from taxation, and implementing a mechanism that would fund the vast majority of the state’s budget by collecting fully 75% of the annual rental value of land. Prosper California seeks to mandate these reforms via constitutional amendment, adopted by referendum. In order to get on the ballot, some 700,000 valid signatures are needed by this March. Mr. Walker plans to cover the cost of advertising himself, and to gather enough volunteers to have the required signatures in time.

A key part of this proposal is to use the rental value of land, not its selling price, as the tax base. Walker explains that “Rent is the basic measure of land value…. Rents tend to be more stable than selling prices which can rapidly increase or decrease as interest rates and expectations of future economic prospects fluctuate. When commercial and retail property is considered, more property is regularly rented or leased than is bought and sold, so rental rates are widely known and readily ascertained.”

The state of California is facing desperate times. It has been issuing IOUs for liabilities such as tax refunds, furloughing public employees and closing state offices three days each month. Education funding has dropped so precipitously that the state Board of Regents voted to increase tuition in state universities by 32%. Its overcrowded prison system, which in recent years has cost 45% more than has higher education in the state, now seeks to cut cost by contracting with the private sector, and releasing inmates early. And by the end of 2009, California had borrowed some $4.7 billion from the federal government just to keep up with unemployment payments.

Frank Walker is convinced that a sane and sensible revenue policy can turn all these numbers around:

With the enactment of this reform, California will become the most attractive state in the US in which to engage in productive activity. Not only will the reduction of existing taxes increase the earnings of businesses and individuals who produce goods and services, but the tax on land rent itself will open up many new productive opportunities by compelling owners of under-utilized but valuable sites, especially in aging or deteriorating urban neighborhoods, to put those sites to their highest and best use or to sell to those who will.

Some Georgists have cautioned that such a hefty levy on land rent, taken all in one bite, will be a political non-starter because of its initial effect of reducing the selling price of real estate. While Prosper California’s web site does acknowledge that “Once a tax on the rental value of land has been introduced, any purchaser of land discounts the price to allow for the tax.” However, Walker is convinced that the many obvious benefits will persuade the voters:

Offsetting tendencies will be at work simultaneously because both triggering events will occur at the same time. The elimination of over $100 billion in current California taxes which fall on productive activity will greatly increase net returns to labor and capital in California. Economic theory suggests that additional inputs of labor and capital will begin flowing into California seeking productive opportunities until a new equilibrium has been established in which wages and interest will be no higher than levels which prevail outside of California. This equilibrium is established by the increase in land rent — the rental value of land — which will be much higher after the reform than before.

It may be that the taxpayers of California are facing a sort of “prisoner’s dilemma.” If they stubbornly refuse to give up any of what they’ve got, the state’s free fall will go right on — but if they choose to cooperate, foregoing some asset value, they will reap a far more prosperous economy with lower tax burdens and more liberating possibilities. Be that as it may — the Georgist movement’s front lines, right now, seem to be in the Golden State. If Prosper California’s campaign succeeds, then all those folks heading West, looking for jobs, as they did in the 1930s, will be welcome in California, whether they’ve got that dough-re-mi or not!

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