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Nic Tideman: Basic Tenets of the Incentive Taxation Philosophy
We believe that the opportunities that governments assign to citizens should be assigned in ways that recognize the equal rights of all. Governments should not enrich some persons at the expense of, or to the exclusion of, others. When governments must assign opportunities that cannot be made available to all, those to whom the opportunities are assigned should be required to pay into the public treasury, on an annual basis, an amount equal to what the opportunities would have been worth to others.
For some opportunities this principle is widely recognized. An example would be the allocation of off-shore oil drilling rights. No one says that governments should decide how much drilling rights each oil company deserves, and pass the rights out without charge. It is recognized that the value of these rights ought to accrue to the public treasury, and any company that extracts the oil should be obliged to pay, through an auction, what the rights it exercises would have been worth to some other oil company. We believe that this principle should be applied to all opportunities that are assigned by governments.
Nic Tideman: Comments on the NTIA's Comprehensive Policy Review of Use and Management of the Radio Frequency Spectrum
Both on grounds of justice and on grounds of efficiency, a market-based system of allocating rights to use the radio frequency spectrum, with public collection of the value of rights granted, is best. The right to use the frequency spectrum is a scarce resource, whose value is derived primarily from the mere existence of the spectrum and not from the efforts of those who might be granted use. Thus the whole population has equal respectable claims to use. But efficient use of the resource requires exclusive assignment of frequencies within particular geographical areas. Therefore justice is served by requiring those who receive the privilege of use to compensate the rest of the population for that privilege. Read the whole article
Nic Tideman: The Case for Site Value Rating
The Social Justice of Site Value Rating
The Efficiency of Site Value Rating
How Valuations would be Made
Both for reasons of social justice and for reasons of economic efficiency, site value rating deserves a continued place in the programme of the Liberal Party.
The case for site value rating in terms of social justice is founded on two understandings: first, that the value of land in the absence of economic development is the common heritage of humanity, and second, that increases in the rental value of land arising from economic development and government expenditures should be collected by governments to finance those activities. What is meant by "land" is the unimproved value of sites and the value of extractable natural resources such as North Sea oil.
While there may someday be institutions capable of implementing a recognition of land as the heritage of all humanity on a worldwide basis, in the absence of such institutions each nation should implement a recognition that land within its boundaries is the common heritage of its citizens. This is accomplished not by making the nation a gigantic Common or by instituting government management of all land, but rather by requiring all persons and corporations that are granted the use of land to pay a fee or tax equal to what the rental value of the land they control would be if it were in an unimproved condition.
The case for site value rating in terms of economic efficiency is founded on the fact that a tax on resources that are not produced by human effort is one of the few sources of government revenue that does not reduce incentives for people to be productive. Two other revenue sources that have this virtue are taxes on other government-granted privileges such as exclusive use of radio frequencies and taxes on activities with harmful consequences, such as polluting the air. An economy will be more efficient if revenue sources that do not diminish productivity are employed to the greatest possible extent before any use is made of taxes that impede productivity.
What makes a tax efficient is that the amount of tax that is due cannot be reduced by reducing productive activities. When incomes are taxed, people can reduce the amount of taxes owed by working less. They do so, and the productivity of the economy falls. When houses are taxed, people can reduce the amount of taxes owed by building fewer house and smaller houses. They do so, and the housing shortage worsens. But when the unimproved value of land is taxed, there is no resulting diminution in the quantity of land. Thus taxes can be levied on land without diminishing the productivity of an economy. And shifting taxes from other, destructive bases to land will improve the productivity of an economy.
Subsequent sections explain in more detail these social justice and efficiency arguments for site value rating, describe procedures for implementing such a tax system, and explain why a variety of potential objections are without merit. ...
How Valuations would be Made
Before describing the valuation
process, which employs auctions,
it is useful to discuss the concept of a "second-price auction." A
second price auction is one in which each bidder submits a single
sealed bid, and the object is sold to the highest bidder at a price
equal to the second highest bid. Second-price auctions have the
advantage of making bidding simpler and more straight-forward. In an
ordinary sealed-bid auction, in which the highest bidder pays what he
or she bids, bidders are induced to under-bid strategically, not
revealing the full value to them of the auctioned item, so that they
can obtain it at a more advantageous price. This incentive for
strategic underbidding is eliminated by a second-price auction. With
a second price auction, a bidder who bids less than the object is
worth saves no money as long as he or she is the highest bidder, and
if the bid is low enough not to be the highest bid, the object is
lost to another bidder. Nor is over-bidding beneficial. Either it
makes no difference, or it results in the object being bought at a
price of more that it is worth to the bidder. Thus honest statements
of the value of the thing being auctioned are in the self-interest of
bidders in second-price auctions. By a similar line of reasoning,
when a contract is to be let to the lowest bidder, honest statements
of the lowest price at which a party is willing to do the work can be
obtained by letting the contract to the lowest bidder at a price
equal to the second-lowest bid. There are two efficiency advantages
to second-price auctions. Bidders do not have to spend resources
trying to compute their strategically most advantageous bids, and
because bids represent accurate valuations, the winning bidder is the
person who values the object most, or can truly do the work at the
lowest cost. It might seem that the amount received by the seller
would be smaller in a second-price auction. However, the higher bids
that result from removing the incentive for strategic under-bidding
approximately offset the reduced returns from charging only the
second-highest bid.... Read the whole article
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper