Payroll Taxes

Georgist policy removes the many big tax wedges between worker and employer, and employer and customer, and worker and consumable goods. Thus labor can cost the employer less, while the worker gets more disposable income after-tax. Many economists inveigh against the minimum wage, claiming it overprices labor. It is a matter of suspicion that they are then silent on the deadly effects of the payroll tax, which affects workers at all levels. Sales taxes, too, cut into real wages, yet many of these same economists would raise sales taxes and introduce VAT. President and Mrs. Clinton now speak seriously of raising payroll taxes even more, to finance the new health plan.

There is a high elasticity of demand for labor. This may be observed in farming, for example, where landowners have avoided union wage rates simply by shifting their land from fresh fruits and vegetables to labor-sparing uses like small grains or cotton. Conversely, removing the payroll tax burden will move owners to shift land back into labor-using enterprises. Read the whole article

Tip O'Neil, the former Speaker of the US Congress, is oft-quoted that "All politics is local politics." One might say the same of market power. Some lands are sold or leased with covenants against competition, as Gimbel's Department Store holds a covenant on a lot adjoining its parent store on 3rd Street and Wisconsin Avenue, Milwaukee. Such anticompetitive arrangements, however blatant, are intra-state, and apparently immune from sanctions under US Federal anti-trust laws. Scholars of industrial organization, many of them doing outstanding work otherwise, pay these grass-roots matters little heed. Researchers and activists concentrate on commodity markets at national and world levels -- the ones subject to Federal sanctions, such as they are. They could probably find more severe and blatant market failure in local land markets.

Bargaining power increases with the number of options one has. A large landowner with a chain of holdings in different jurisdictions is positioned to bargain, to play off one against the other. Thus, the Disney Corporation, 1991-93, considered rebuilding and expanding Disneyland at its current site in Anaheim, or in Long Beach where it had tenure over another suitable site. Using this leverage it won concessions from both cities, "finally" choosing to expand in Anaheim. It has yet to do so, however, and nothing is really final. Disney has many other sites around the world.

Likewise, land is a basis for oligopsony power in local labor markets. A city's labor pool is often faced with a local employers' association whose membership is limited by the amount of industrial land within reach of the labor pool. Migrant farm labor is faced with statewide employers' associations who have the advantages of limited numbers, wealth, ancient roots and stability. Labor unions that organize a local plant are faced with the threat of the "runaway shop", or merely reallocating work among plants, when the employer owns plants elsewhere.

Custom has dulled us to it, but a corporation is a pool of separate individual landowners bargaining in concert. A century ago, corporations and limited liability were viewed with suspicion and apprehension. Today, hundreds and thousands of separate landowners pool their corporate strength against labor, as a matter of course. Some employees bargain through unions, but not as a matter of course, and hardly ever with international options. In the US, less than 20% of the labor force is unionized, yet many, probably most economists treat labor as the only threatening monopoly. They see corporations as benign; a prime cause carried by many economists today is to eliminate the corporate income tax completely. Would we saw such support for eliminating the payroll tax, the most obvious cause of unemployment.... read the whole article

Rent will become huger yet when you abate taxes presently levied on production and exchange, because these now depress the rent of land. That is, in a tax-free market economy, the benefit of abating present taxes will lodge mainly in land rents. The taxable surplus simply shifts from one form to another. This is more than a simple shift of a fixed amount. When you substitute land revenues for existing taxes, the surplus actually grows, as if by synergy. You gain more revenue base than you lose, because existing taxes now suppress much latent production. Payroll taxes directly drive workers from taxable jobs to untaxed gains from crime. Abating those taxes will unleash suppressed economic giants, along with all the new surplus values their latent production will generate. "Monetarists" warn you that "there are no free lunches." In fact, however, good policy creates lots of "free lunches." It makes the whole greater than the sum of its parts. Imagine the benefits, alone, of turning people from destructive careers in crime to useful jobs producing goods. ... read the whole article

... There are many more possible tax types we might consider, taxes imposed on parts of C, but not all. A payroll tax is an example. This tax would discourage the use of labor on land, but not the use of capital, and so would have two biases: less labor use, with the same capital use, or even more capital use as capital substitutes for labor. We do not here pursue all such possibilities of bad tax policy, for they are too numerous. The major point is that taxes on any base other than N, the Net Product of land, bias the market against the best and fullest use of land. ...

Taxing the Net Product of Land Permits Untaxing Labor

The IMF and its allies advise you to impose heavy taxes on the payrolls of labor, and on employers who hire labor, and on the goods labor must buy to survive and support families. Then they turn around and tell you that labor-intensive operations, like some of your coal mines, are inefficient because labor is so costly, even though the workers are getting very little after taxes. They advise you to downsize or close these operations, throwing labor out of work. They even lend you money for the purpose: not to develop and build up Russia, but to dismantle its industry, which they call "restructuring," and throw its workers onto welfare. In a few specific cases they may be right, but in general, this is a strange way to develop Russia's economy and living standards! It is enough to make one wonder whose welfare they have in mind. ... Read the whole article

Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
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