Geoliberal

Nic Tideman: Improving Efficiency and Preventing Exploitation in Taxing and Spending Decisions

George Reisman advocates what might be called "conservative classical liberalism." This position is that certainty in property rights is so valuable that one should never ask whether unjustifiable violence was used in establishing the existing pattern of control over natural opportunities.

Every natural opportunity belongs to whoever most recently succeeded in establishing control over it.

Murray Rothbard, by contrast, took what might be called the "homesteading libertarian" position. This is the position that when we can know who first used a natural opportunity, it belongs to that person, or to his or her successor in title through gift and exchange. All thefts from victims with identifiable successors should be undone. When we cannot identify the proper successor of the first user, the a thing belongs to whoever is using it now, unless that person stole it, in which case it properly belongs to whoever brings the thief to justice.

The third position, which might be called "geoliberalism" emerges from the work of Henry George. This is the position that all persons have equal rights to natural opportunities, which rights should be secured by having the public treasury collect the rental value of exclusive access to land and other natural opportunities, with the revenue used for public purposes and guaranteed incomes.

Of these three approaches, I find geoliberalism most attractive. It fits my sense of justice that all persons should have equal rights to natural opportunities. In addition, by providing funding for guaranteed incomes, geoliberalism offers a greater prospect for removing more of the distorting taxes that finance the welfare state.

A possible difficulty with classical liberalism as a justification for government action is that it may justify little if any government action. Taxes intrude upon individual liberty. How is this intrusion to be justified? One way to try to get around this difficulty is by the claim that some expenditures on protecting individual rights are so valuable that anyone would understand that, for these expenditures, the reduction in individual liberty from taxation is less than the addition to individual liberty from the protection of individual rights that is possible with taxation. However, if improving the well-being of all citizens is the justification, then one should ask whether there is adequate justification for even these government actions if they do not have unanimous support.

Supporters of government action might argue that if unanimous support were required, then the problem of selfish individuals holding out for greater shares of the surplus would raise transactions costs to the point where nothing could be done, even if there were things that would make everyone better off. But that justification carries the risk of justifying nearly anything. If those in power have an excuse to ignore what citizens say about what they value, what limits to power are there?

Geoliberalism offers a different way of justifying public spending and the taxation that finances it. If people are perfectly mobile, and if there are enough people who value a local public good to fill the area that benefits from it, then the provision of a local public good will raise land rents by enough to pay for the public good. In collecting the rental value of land, governments will collect enough to pay for any worthwhile local public goods that they provide.

Under the conservative or homesteading libertarian versions of classical liberalism, the possessor of land might say, "This is my land. I didn't ask for these public goods. You have no right to tax me to pay for them." Under geoliberalism, on the other hand, the community can reply, "You have as much right to the use of land and other natural opportunities as anyone else. If you want to exercise your rights in this community, these are the taxes you must pay. If you don't like it, claim your share of natural opportunities somewhere else."

If people are perfectly mobile and have an unlimited range of communities to choose among, then they cannot be exploited and need not tolerate inefficiency. They will move. Competing communities will find that the utility-maximizing public sector equilibrium involves providing all local public goods with benefits greater than costs, financing them by a combination of fees equal to marginal costs and taxes on the land that benefits from differential access to the local public goods. There will be no taxes on labor or capital except to internalize externalities.

If tastes vary so much that a community cannot be filled with people with the same taste for local public goods, then it will not be possible to finance all worthwhile local public goods by the increase in rent that they generate.

The community will either have to leave some worthwhile local public goods unprovided, or finance them from some other source. But in either case the residents are treated fairly if they are free to move elsewhere and choose not to do so. ...

Of course, we are very far from public acceptance of geoliberal principles. So the question arises of what might be done within current political understandings to reduce inefficiency and exploitation in taxing and spending. It is hard to know how much more than what is being done might be done. Let me be on the imaginative side.

There is a proposal that tax increases be allowed only with a two-thirds majority of both houses of Congress. That has some merit, but it carries a risk of excessive deficits. It also allows the existing level of taxation to go unquestioned. It would probably be better to have a rule that every spending proposal must be approved by a two-thirds majority of both houses of Congress to be enacted. Maybe three-fourths. If spending is truly worthwhile, then, as Wicksell said, there is a way of financing it that will secure the approval of nearly everyone.

The current trend toward returning functions to the states is a step in the right direction. But it encounters understandable objections that poor states cannot afford to do what they ought to do. Some form of revenue sharing is needed. But it is important to have the right definition of which states are rich and which are poor. The level of well-being in a state is determined in part by the wisdom of its public policies. States should not be penalized for adopting productive policies. Revenue sharing should equalize per capita levels of natural opportunities (mineral revenues, fishing rights, pre-development land rents, etc.) Replacing the personal and corporate income taxes with either a flat income tax or a national sales or value added tax would greatly reduce the excess burden of federal taxes. (Excess burden is roughly proportional to the square of the typical marginal tax rate.) But almost all the gains go to the rich. Perhaps the flat tax could be combined with a guaranteed income.

Even better than a flat tax or a national sales tax, in my view, would be a return to the revenue system that was apparently envisioned by the drafters of the Constitution in 1787. I mean a rule that the federal revenue requirement would be allocated to the states in proportion to their populations. The use of population as the allocation device seems anachronistic in this era of concern for impoverished regions. But the allocation could be corrected by an expenditure that equalized per capita access to natural opportunities. ... read the whole article