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Capital Markets Nic Tideman: The Case for Taxing Land I. Taxing Land as Ethics
and Efficiency
II. What is Land? III. The simple efficiency argument for taxing land IV. Taxing Land is Better Than Neutral V. Measuring the Economic Gains from Shifting Taxes to Land VI. The Ethical Case for Taxing Land VII. Answer to Arguments against Taxing Land There is a case for taxing land based on ethical principles and a case for taxing land based on efficiency principles. As a matter of logic, these two cases are separate. Ethical conclusions follow from ethical premises and efficiency conclusions from efficiency principles. However, it is natural for human minds to conflate the two cases. It is easier to believe that something is good if one knows that it is efficient, and it is easier to see that something is efficient if one believes that it is good. Therefore it is important for a discussion of land taxation to address both question of efficiency and questions of ethics. This monograph will first address the efficiency case for taxing land, because that is the less controversial case. The efficiency case for taxing land has two main parts. ... To estimate the magnitudes of the impacts that additional taxes on land would have on an economy, one must have a model of the economy. I report on estimates of the magnitudes of impacts on the U.S. economy of shifting taxes to land, based on a mathematical model that is outlined in the Appendix. The ethical case for taxing land is based on two ethical premises: ... The ethical case for taxing land ends with a discussion of the reasons why recognition of the equal rights of all to land may be essential for world peace. After developing the efficiency argument and the ethical argument for taxing land, I consider a variety of counter-arguments that have been offered against taxing land. For a given level of other taxes, a rise in the rate at which land is taxed causes a fall in the selling price of land. It is sometimes argued that only modest taxes on land are therefore feasible, because as the rate of taxation on land increases and the selling price of land falls, market transactions become increasingly less reliable as indicators of the value of land. ... Another basis on which it is argued that greatly increased taxes on land are infeasible is that if land values were to fall precipitously, the financial system would collapse. ... Apart from questions of feasibility, it is sometimes argued that erosion of land values from taxing land would harm economic efficiency, because it would reduce opportunities for entrepreneurs to use land as collateral for loans to finance their ideas. ... . Another ethical argument that is made against taxing land is that the return to unusual ability is “rent” just as the return to land is rent. ... But before developing any of these arguments, I must discuss what land is. ... Another way in which a tax on land can be better than neutral is that it can ameliorate imperfections in lending markets. Because capital markets are not perfect, people vary with respect to the discount rate that they apply to future taxes. The lower the discount rate, the higher will be the present value that a person assigns to future land tax payments. This means that an increase in taxes on land will lower the bid prices of those with low discount rates by more than it lowers the bid prices of those with high discount rates. Thus an increase in taxes on land will tend to shift land from people with low discount rates to people with high discount rates. Since people with high discount rates get greater returns from their assets, this increases economic output. ... Measuring the Economic Gains from Shifting Taxes to Land There are three principal sources of economic gains from shifting taxes away from capital and labor and onto land: 1) The removal of
taxes from labor motivates people to make more efficient decisions
about how much to work;
2) The removal of taxes from capital motivates people to make more efficient decisions about how much to save; and 3) increasing taxes on land motivates people to speculate less in land, increasing the amount of land available for current use. In this
section I report estimates of the magnitudes of these effects, derived
from a general equilibrium model of the U.S. economy. ... Read the
whole article
Nic Tideman: The Structure of an Inquiry into the Attractiveness of A Social Order Inspired by the Ideas of Henry George
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