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We hear from time to time that the
American people do not save enough. Few have significant amounts
of money put aside toward a rainy day or toward retirement. (See
Ed Wolff's work on Asset Poverty for particulars.) So rather than providing for their own future needs and those of the members of their family, they are first providing for the wants of the previous owner of the land they currently occupy. How nice for the previous owner! (Do you remember the ad line from the 60s or 70s: "Is this any way to run an airline?" You bet it isn't!) And then we turn around and blame "government" for being too generous with these very people. Weird! 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: 1)
every person has a right to himself or herself, and
2) all persons have equal rights to the natural opportunities that are not embodied in persons. The first
premise leads to the conclusion that taxing
people according to the products of their efforts or the products of
their saving can only be just if people voluntarily agree,
individually, to be subject to such taxes. Taxing land, on
the
other hand, does not involve such an intrusion on individual
rights. In fact, taxing land is a way equalizing the advantages
of access to land, as required by the second premise.
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. ... What makes it impossible to tax everything at the same rate is that one of the things that would need to be taxed is leisure. Taxing authorities have not yet devised ways to maintain people’s tax obligations when they decide to earn and spend less money. Thus all systems that tax people according to what they receive (from working or saving), or spend, generate excess burdens. They do this by making the incentive to work less than the value of what people produce and the incentive to save less than the productivity of investments financed by saving. Still, systems of ‘broad-based’ taxes (e.g., sales taxes, income taxes and value added taxes) generally have lower excess burdens than tax systems in which a variety of individual goods and services are taxed at different rates. Actual broad-based taxes generally have exceptions and non-uniformities, and these generally increase the excess burdens that the taxes cause. Still, one way in which a departure from uniformity in taxation can promote efficiency is that, if there are some goods and services that are particularly likely to be purchased in greater quantity when people consume more leisure, then a somewhat higher tax on these can serve as a partial substitute for taxing leisure. In addition to discouraging work, most tax systems discourage saving by taxing the proceeds of people’s savings. This results in less saving and investment. With the passage of time, this can cause a very large reduction in the amount of capital in an economy. And a reduced stock of capital generally means that labor will be less productive and wages will be lower. A tax system that taxed only consumption and not saving would not have this component of excess burden. However, raising a given amount of revenue in a tax system that did not tax saving would require a greater distortion of the labor/leisure decision than in a tax system that did tax saving. ... Households choose the quantity of labor that is employed in production, taking account of the wage after taxes, their total resources, and their preferences. (The wage before taxes is the marginal product of labor.) The quantity of capital that is employed in production is the quantity that households have chosen to accumulate, taking account of the return to saving after taxes, their total resources and their preferences. (The return to capital before taxes is the marginal product of capital.) ... Read the whole article Mason Gaffney: Land as a Distinctive Factor of Production Existence
of land value actually lowers saving rates.
i) Land value substitutes for real capital in portfolios and thus lowers the need to create real capital. This is the same effect that historians have noted about the negative effect of slavery on capital formation. It is part of the “wealth effect.” (The other part is lowering incentives to work, and raising incentives to allocate both land and capital to personal pleasure instead of earning cash by serving others.) High land values may also affect interest rates indirectly by reducing saving and the supply of capital. The existence of high land rents and values, like the ownership of slaves, tends to satisfy the need for accumulation of assets without any actual capital formation. ii) Rising land prices are net income to individuals. Most of net income is normally consumed. "Equity withdrawal" is a common form that this takes. Another form is letting land appreciation substitute for a capital consumption allowance as capital depreciates.... read the whole article |
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