Remember Cowen’s Second Law: There is a literature on everything. In this case, the man who wrote the book on environmental libertarianism is a member of our local Santa Clara County LP: Dr. Fred Foldvary, economist at San Jose State University.
His article on the Green Tax Shift is still the best single public policy essay I've ever read.
That and many other articles on green libertarianism (a.k.a. ecolibertarianism a.k.a. geolibertarianism) are at http://earthfreedom.net/ecolibertarianism
I'll only add a couple points about short-term tactics and long-term perspective:
Short-term: environmentalism is an irresistible force in our modern culture -- similar to increasing social tolerance, or the weakening of religion. Libertarianism benefits from the latter two, but opposes environmentalism at its mortal peril. Luckily, economic analysis demonstrates that the best environmental policy is to use pricing -- - music to libertarian ears! So libertarians need to learn the tune, or else become a bug on the windshield.
Long-term: Warming from anthropogenic greenhouse gases is real, but the risks are overblown. Since the Cambrian explosion, life on Earth has handily endured periods much warmer than now and much cooler than now. Even in its brief tenure, H. sapiens has endured much bigger differences in temperature and sea level than what we now face. Heck, it's probably worth a few feet of sea-level rise to defrost the wastelands of Siberia and Canada.
The only greenhouse problem we can't engineer our way out of is species loss. Global warming may very well be causing an extinction spike that dwarfs the Columbian Exchange and rivals the Quaternary extinction (overkill by human hunters migrating to new continents). Handling species loss is a poorly-developed area of libertarian ethics and policy. But when the species loss is primarily due to greenhouse-gas emissions, the answer is clear: add a pollution cost to the price of polluting products/transactions. (This doesn't require world government, any more than worldwide low tariffs after WWII have required world government.)
Showing posts with label Geolibertarianism. Show all posts
Showing posts with label Geolibertarianism. Show all posts
Saturday, March 24, 2018
Saturday, July 30, 2011
Geolibertarian Tax Policy
As a geolibertarian, I advocate equal taxes on all income: zero.
Geolibertarians oppose all taxes on things that aren’t aggression: honest income (wages, interest, dividends, profits, gifts, and inheritance), clean production (including value added), consensual transactions (e.g. the sale, import, or export of goods and services), and fairly-acquired wealth (e.g. real estate improvements, capital, or other produced assets).
Geolibertarians favor taxes/fines only on aggression — e.g. polluting, depleting, congesting, or monopolizing the commons. In practical terms, this means
Geolibertarians oppose all taxes on things that aren’t aggression: honest income (wages, interest, dividends, profits, gifts, and inheritance), clean production (including value added), consensual transactions (e.g. the sale, import, or export of goods and services), and fairly-acquired wealth (e.g. real estate improvements, capital, or other produced assets).
Geolibertarians favor taxes/fines only on aggression — e.g. polluting, depleting, congesting, or monopolizing the commons. In practical terms, this means
- policing negative externalities through green pricing (e.g. pollution taxes)
- protecting unowned natural resources with severance fees
- financing club goods (e.g. highways, bridges, pipes, wires) through usage/congestion fees
- financing public goods (e.g. streets, flood control, national defense) by taxing the extra land value they create
Tuesday, February 09, 2010
Why Tax Land Value?
The reason economists say that a tax on land value is the "least bad" tax is that such taxes have no deadweight loss. Any tax on production or exchanges or movable assets causes economic inefficiency. A tax on these things causes a deadweight loss (i.e. allocative inefficiency) because people who would have more marginal benefit than marginal cost are not buying the good or service — just as a subsidy induces people to buy who impose more marginal cost than their marginal benefit. However, this effect of taxation does not happen when the supply of the taxed good is perfectly inelastic, as is the supply of land — more precisely, the surface area of the Earth. Sites cannot flee or evade taxation, and the available amount of them is not reduced when they are taxed. (When a tax is not on a good but rather on a "bad", like pollution or congestion, it's the very absence of the tax that causes allocative inefficiency, because external costs are not internalized.)
Taxing land value is not only more efficient than taxing production or exchanges, but it is also less intrusive. All the government needs to know is who owns each plot of land and how much the unimproved land is worth. Appraisers and insurers make such calculations routinely, and one variant would have each land-holder self-assess as long as he's willing to take any offer over his assessed value. There's no need to audit anyone's behavior, as with taxes on income/production/exchanges. You don't even need to visit the site or look over the fence, as you do with taxes on land improvements or square footage. For illiquid landholders, taxes could accumulate as a lien against the property, capped at its market value, so nobody need ever be taxed off the land they hold.
Land value taxes need not even be strictly mandatory. If you as a landholder decline to return to our community the ground rent you appropriate from us, then we could simply disconnect you from our wires and pipes, and while you’re in arrears we could publish your name, address, and photo as someone whose property and person are excluded from the protections of our LVT-financed police and courts. If we catch you using any of our streets, parks, or other LVT-financed public goods, then you would owe the arrears on your parcel's land value tax, per the terms of the no-trespassing signs prominently marking those public goods.
Land value taxes are naturally local, and so encourage Tiebout Sorting. If the the local mix of government services is too high (or too low) for your taste, or if they aren't a good value for the LVT rate financing them, then you can vote with your feet. By contrast, income and sales taxes tend to get centralized at the state or even national level, because (unlike land) income and sales can flee to lower-tax jurisdictions. (New Hampshire is among the most free states, and gets the highest percentage of government revenue from property taxes. California finances its high government spending with high centralized state income taxes that rose after Prop 13 restricted local property taxes in 1978.)
LVT retrieves the extra land value created by public services — streets, pipes, levees, police, parks. This creates pressure to defund public services that do not actually add value in the free market for land.
LVT turns out to closely model how consensual private communities tend to govern themselves. Malls, business parks, hotels, condominiums, homeowners associations — all tend to "tax" their tenants not according to profits or revenues or inventory or improvements, but mostly by site value (for which square footage is often a good proxy).
LVT imposes a built-in ceiling on government revenue. Critics of land value taxation claim it wouldn't raise enough revenue because ground rent is allegedly only a small fraction of GDP. That sounds like a good thing to me. If government revenue is restricted by definition to ground rent and fees for polluting/congesting/depleting the commons, then government cannot be nearly as big as when it is allowed to tax labor, production, exchanges, and all resulting products. Once you have taxation of people's labor and exchanges and produced assets, there is no limit to what the government can take from you.
Taxing land value is not only more efficient than taxing production or exchanges, but it is also less intrusive. All the government needs to know is who owns each plot of land and how much the unimproved land is worth. Appraisers and insurers make such calculations routinely, and one variant would have each land-holder self-assess as long as he's willing to take any offer over his assessed value. There's no need to audit anyone's behavior, as with taxes on income/production/exchanges. You don't even need to visit the site or look over the fence, as you do with taxes on land improvements or square footage. For illiquid landholders, taxes could accumulate as a lien against the property, capped at its market value, so nobody need ever be taxed off the land they hold.
Land value taxes need not even be strictly mandatory. If you as a landholder decline to return to our community the ground rent you appropriate from us, then we could simply disconnect you from our wires and pipes, and while you’re in arrears we could publish your name, address, and photo as someone whose property and person are excluded from the protections of our LVT-financed police and courts. If we catch you using any of our streets, parks, or other LVT-financed public goods, then you would owe the arrears on your parcel's land value tax, per the terms of the no-trespassing signs prominently marking those public goods.
Land value taxes are naturally local, and so encourage Tiebout Sorting. If the the local mix of government services is too high (or too low) for your taste, or if they aren't a good value for the LVT rate financing them, then you can vote with your feet. By contrast, income and sales taxes tend to get centralized at the state or even national level, because (unlike land) income and sales can flee to lower-tax jurisdictions. (New Hampshire is among the most free states, and gets the highest percentage of government revenue from property taxes. California finances its high government spending with high centralized state income taxes that rose after Prop 13 restricted local property taxes in 1978.)
LVT retrieves the extra land value created by public services — streets, pipes, levees, police, parks. This creates pressure to defund public services that do not actually add value in the free market for land.
LVT turns out to closely model how consensual private communities tend to govern themselves. Malls, business parks, hotels, condominiums, homeowners associations — all tend to "tax" their tenants not according to profits or revenues or inventory or improvements, but mostly by site value (for which square footage is often a good proxy).
LVT imposes a built-in ceiling on government revenue. Critics of land value taxation claim it wouldn't raise enough revenue because ground rent is allegedly only a small fraction of GDP. That sounds like a good thing to me. If government revenue is restricted by definition to ground rent and fees for polluting/congesting/depleting the commons, then government cannot be nearly as big as when it is allowed to tax labor, production, exchanges, and all resulting products. Once you have taxation of people's labor and exchanges and produced assets, there is no limit to what the government can take from you.
Sunday, October 25, 2009
Non-Profits and Land Value Taxation
Churches and other non-profits are usually exempt from property taxes, but there's no good reason for treating them differently.
Example: In the Silicon Valley suburb where I live, land is worth about $2 million per acre. There is a 20-acre monastery here (adjacent to the mansion recently sold by Barry Bonds, and down the street from Cisco's CEO) where 16 cloistered elderly nuns sleep on straw mattresses, have no TV, and wake up in the middle of the night to pray. Their only "work" is "prayer", and they live only on "alms". I kid you not: http://www.poor-clares.org/losaltos/losaltosl.html.
Example: About a mile north of here are hundreds of acres of land owned by Stanford University in the hills above campus, with sweeping views of the San Francisco Bay. Nearly all of the land is off-limits to everyone but -- wait for it -- cows. The university grazes a handful of cows there, in order to comply with Leland Stanford's requirement that a demonstration farm be maintained on a portion of the vast amount of land he used to create the university.
So we have nuns and cows, both sleeping on straw, keeping hundreds of acres of prime Silicon Valley land off the market, thus propping up property values for me and my zillionaire CEO neighbors, and making sure that their gardeners and maids can't afford to live anywhere near them.
For the market to be able to guide all land to its best use, all land has to be treated equally -- even land owned by churches and governments. If people really value churches, they'll either pay for them to occupy prime sites, or they'll drive a little further when they want to go pray as a group.
Example: In the Silicon Valley suburb where I live, land is worth about $2 million per acre. There is a 20-acre monastery here (adjacent to the mansion recently sold by Barry Bonds, and down the street from Cisco's CEO) where 16 cloistered elderly nuns sleep on straw mattresses, have no TV, and wake up in the middle of the night to pray. Their only "work" is "prayer", and they live only on "alms". I kid you not: http://www.poor-clares.org/losaltos/losaltosl.html.
Example: About a mile north of here are hundreds of acres of land owned by Stanford University in the hills above campus, with sweeping views of the San Francisco Bay. Nearly all of the land is off-limits to everyone but -- wait for it -- cows. The university grazes a handful of cows there, in order to comply with Leland Stanford's requirement that a demonstration farm be maintained on a portion of the vast amount of land he used to create the university.
So we have nuns and cows, both sleeping on straw, keeping hundreds of acres of prime Silicon Valley land off the market, thus propping up property values for me and my zillionaire CEO neighbors, and making sure that their gardeners and maids can't afford to live anywhere near them.
For the market to be able to guide all land to its best use, all land has to be treated equally -- even land owned by churches and governments. If people really value churches, they'll either pay for them to occupy prime sites, or they'll drive a little further when they want to go pray as a group.
Wednesday, March 18, 2009
Cut Taxes All The Way To The Ground
A land value tax is not necessarily any worse in terms of forfeiture than any other kind of tax. The government comes after almost any/all of your assets if you owe it taxes. However, I wouldn't necessarily have land be forfeit when the landholder fails to return the geo-rent to the community (i.e. pay the "property tax"). We could let unpaid taxes accrue with interest as a lien against the eventual sale or transfer of the land, with the amount due capped at the market value of the land at the sale or transfer.
The reason economists say that taxes on land value (and pollution or congestion of a commons) is the "least bad" tax is that such taxes have no deadweight loss. Any tax on production or exchanges or movable assets causes economic inefficiency. A tax on these things causes a deadweight loss (i.e. allocative inefficiency) because people who would have more marginal benefit than marginal cost are not buying the good or service, just as a subsidy causes people to buy who impose more marginal cost than their marginal benefit. However, this effect of taxation does not happen when the supply of the taxed good is perfectly inelastic, as is the supply of land -- more precisely, the area on the surface of the Earth. Sites cannot hide, they cannot flee, and the available amount of them cannot be changed. (When a tax is not on a good but rather on a "bad", like pollution or congestion, it's the very absence of the tax that causes allocative inefficiency, because external costs are not internalized.)
"Taxing" land value (i.e. geo-rent) is less unjust than any tax on production or exchanges, because geo-rent is not created by the land-holder. Geo-rent is the extra income a site earns because of the exclusivity of its location within the community, as compared to what such a site would earn at the edge of the community. (Technically, geo-rent is the extra production you get from exclusive use of a site compared to the most productive available site that is not in use, given the same inputs of labor and capital.)
Taxing geo-rent is not only more efficient than taxing production or exchanges, but it also is less intrusive. All the government needs to know is who owns each plot of land and how much the unimproved land is worth. Appraisers and insurers make such calculations routinely, and one variant would have each land-holder self-assess as long as he's willing to take any offer over his assessed value. There's no need to audit anyone's behavior, as with taxes on income/production/exchanges. You don't even need to visit the site or look over the fence, as you do with taxes on land improvements or square footage.
Finally, taxing geo-rent imposes a built-in ceiling on government revenue. Critics of land value taxes claim they wouldn't raise enough revenue because geo-rent is allegedly only a small fraction of GDP. That sounds like a good thing to me. If government revenue is restricted by definition to geo-rent and fees for polluting/congesting/consuming the commons, then government cannot be nearly as big as when it is allowed to tax labor, production, exchanges, and all resulting products. Once you have taxation of people's labor and exchanges and produced assets, there is no limit to what the government can take from you.
Professor Foldvary lays out all these arguments in these two excellent papers:
The reason economists say that taxes on land value (and pollution or congestion of a commons) is the "least bad" tax is that such taxes have no deadweight loss. Any tax on production or exchanges or movable assets causes economic inefficiency. A tax on these things causes a deadweight loss (i.e. allocative inefficiency) because people who would have more marginal benefit than marginal cost are not buying the good or service, just as a subsidy causes people to buy who impose more marginal cost than their marginal benefit. However, this effect of taxation does not happen when the supply of the taxed good is perfectly inelastic, as is the supply of land -- more precisely, the area on the surface of the Earth. Sites cannot hide, they cannot flee, and the available amount of them cannot be changed. (When a tax is not on a good but rather on a "bad", like pollution or congestion, it's the very absence of the tax that causes allocative inefficiency, because external costs are not internalized.)
"Taxing" land value (i.e. geo-rent) is less unjust than any tax on production or exchanges, because geo-rent is not created by the land-holder. Geo-rent is the extra income a site earns because of the exclusivity of its location within the community, as compared to what such a site would earn at the edge of the community. (Technically, geo-rent is the extra production you get from exclusive use of a site compared to the most productive available site that is not in use, given the same inputs of labor and capital.)
Taxing geo-rent is not only more efficient than taxing production or exchanges, but it also is less intrusive. All the government needs to know is who owns each plot of land and how much the unimproved land is worth. Appraisers and insurers make such calculations routinely, and one variant would have each land-holder self-assess as long as he's willing to take any offer over his assessed value. There's no need to audit anyone's behavior, as with taxes on income/production/exchanges. You don't even need to visit the site or look over the fence, as you do with taxes on land improvements or square footage.
Finally, taxing geo-rent imposes a built-in ceiling on government revenue. Critics of land value taxes claim they wouldn't raise enough revenue because geo-rent is allegedly only a small fraction of GDP. That sounds like a good thing to me. If government revenue is restricted by definition to geo-rent and fees for polluting/congesting/consuming the commons, then government cannot be nearly as big as when it is allowed to tax labor, production, exchanges, and all resulting products. Once you have taxation of people's labor and exchanges and produced assets, there is no limit to what the government can take from you.
Professor Foldvary lays out all these arguments in these two excellent papers:
- The Ultimate Tax Reform: Public Revenue from Land Rent - Foldvary (2006)
- Geo-Rent: A Plea to Public Economists - Foldvary (2005)
Tuesday, November 25, 2008
Appropriating Ground Rent Is Aggression
The standard Libertarian dogma on the needy -- let 'em beg -- is simply wrong. The best libertarian answer to poverty derives from correcting a standard Libertarian misunderstanding of property rights. That misunderstanding consists in ignoring Locke's insight that excluding people from the commons -- i.e. enclosing unowned land for exclusive ownership -- is naked aggression if that exclusion does not leave "as much and as good" for others. Land (i.e. space, locations, sites, sections of the Earth's surface) cannot be created or moved or destroyed by anyone's labor, and so is a different category of property than that created by re-arranging matter. Land (i.e. spacetime) is the coordinate system, and matter (i.e. mass-energy) is what exists in the coordinate system. Owning a set of spatial coordinates is fundamentally different from owning the matter that currently exists there. This seemingly academic distinction turns out to be the key to rescuing libertarianism from self-imposed moral bankruptcy.
In the state of nature there are always marginal but productive sites available for use by the destitute, and faithful historical observation of the Lockean proviso (leaving "as much and as good") should have always ensured that this remained the case even to this day. To the extent that it is no longer the case, excluding people from access to the natural productive opportunities on what used to be the commons is unjust -- i.e. is aggression. Standard anarcholibertarianism seeks to institutionalize this aggression -- ironically doing so in the name of de-institutionalizing aggression. The aggression that it institutionalizes is a subtle one called the appropriation of ground rent.
Ground rent is the advantage you get from exclusive use of a site compared to the most productive available site that is not in use. In effect, ground rent is the extra income a site earns because of the exclusivity of its location within the community, as compared to what such a site would earn at the edge of the community. Technically, ground rent is is the extra income obtained by using a site in its most productive use, compared to the income obtained by applying equivalent inputs of labor and capital at the most productive site where the application doesn't require (additional) payments for use of the site. Thus ground rent doesn't include the income from any labor-based site improvements -- buildings, irrigation, swamp drainage, etc. Instead, ground rent includes just the benefit a site derives from the surrounding community by forcibly excluding them from it.
Geolibertarians say ground rent should be considered part of the commons (like the atmosphere, EM spectrum, etc.), with each individual having an equal right of access to it. In practice, the way to undo the aggression of site monopolization is through a land value tax. This allows a government to finance both rights protection and aid to the indigent, all without any force initiation. The fundamental principle is that each person has full rights to his body, labor, peaceful production, and voluntary exchanges, but he must compensate those whose access he impairs when he monopolizes, consumes, pollutes, or congests a natural commons. Details and references are available at http://EcoLibertarian.org.
In the state of nature there are always marginal but productive sites available for use by the destitute, and faithful historical observation of the Lockean proviso (leaving "as much and as good") should have always ensured that this remained the case even to this day. To the extent that it is no longer the case, excluding people from access to the natural productive opportunities on what used to be the commons is unjust -- i.e. is aggression. Standard anarcholibertarianism seeks to institutionalize this aggression -- ironically doing so in the name of de-institutionalizing aggression. The aggression that it institutionalizes is a subtle one called the appropriation of ground rent.
Ground rent is the advantage you get from exclusive use of a site compared to the most productive available site that is not in use. In effect, ground rent is the extra income a site earns because of the exclusivity of its location within the community, as compared to what such a site would earn at the edge of the community. Technically, ground rent is is the extra income obtained by using a site in its most productive use, compared to the income obtained by applying equivalent inputs of labor and capital at the most productive site where the application doesn't require (additional) payments for use of the site. Thus ground rent doesn't include the income from any labor-based site improvements -- buildings, irrigation, swamp drainage, etc. Instead, ground rent includes just the benefit a site derives from the surrounding community by forcibly excluding them from it.
Geolibertarians say ground rent should be considered part of the commons (like the atmosphere, EM spectrum, etc.), with each individual having an equal right of access to it. In practice, the way to undo the aggression of site monopolization is through a land value tax. This allows a government to finance both rights protection and aid to the indigent, all without any force initiation. The fundamental principle is that each person has full rights to his body, labor, peaceful production, and voluntary exchanges, but he must compensate those whose access he impairs when he monopolizes, consumes, pollutes, or congests a natural commons. Details and references are available at http://EcoLibertarian.org.
Sunday, November 09, 2008
The Patent Value Tax
Like all brilliant ideas, this one is infuriatingly obvious in hindsight -- a straightforward application of a hardcore bid-em-off-the-land version of the land value tax. Some quick web searching reveals no prior art; did you make this up just now?
I would consider modifying the bid-em-off-the-property provision in the same way that I would modify it for land (and maybe orbits but not spectrum). People who can't pay their tax can let it accumulate (with interest) as a lien against the eventual sale or transfer of the property, and the lien is capped at the market value of the property. However, market value of patents is harder to assess, and the escalating patent value tax rate would create an incentive to just let the tax accumulate and then abandon the patent when the rate is too high for anyone to want to bid for it. So I might worry that an undercapitalized inventor will not be able to defend a patent if he and a predatory bidder understand its value more than the market does (or else the inventor could get a loan from the understanding market). However again, I'm confident that markets are good enough at valuing patents that this wouldn't be a big problem.
So I don't yet see any problem with this idea. It could be applied to copyrights too, to the extent that one even believes in copyright.
Dan Sullivan wrote at dfc_talk:
Enter the patent value tax. The holder of a patent would be required to self-assess its value, with the stipulation that anyone could purchase the patent at that value. The purchaser would have to honor contracts into which the previous patent holder had entered, to the extent that he could not increase the royalty charge or impose other restrictions.
The contracts themselves would have to be public contracts. That is, if one producer is allowed to apply a patented invention to a particular type of product at a particular royalty rate, then all producers would be allowed to produce the same product at the same royalty rate.
For the first year a patent is granted, the tax rate could well be zero. It would then gradually increase until, at the year of expiration, it consumes nearly the entire amount of the patent's self-assessed value. Naturally, the value of the patent would decrease as the tax rate increases and the expiration date approaches.
I would consider modifying the bid-em-off-the-property provision in the same way that I would modify it for land (and maybe orbits but not spectrum). People who can't pay their tax can let it accumulate (with interest) as a lien against the eventual sale or transfer of the property, and the lien is capped at the market value of the property. However, market value of patents is harder to assess, and the escalating patent value tax rate would create an incentive to just let the tax accumulate and then abandon the patent when the rate is too high for anyone to want to bid for it. So I might worry that an undercapitalized inventor will not be able to defend a patent if he and a predatory bidder understand its value more than the market does (or else the inventor could get a loan from the understanding market). However again, I'm confident that markets are good enough at valuing patents that this wouldn't be a big problem.
So I don't yet see any problem with this idea. It could be applied to copyrights too, to the extent that one even believes in copyright.
Dan Sullivan wrote at dfc_talk:
Enter the patent value tax. The holder of a patent would be required to self-assess its value, with the stipulation that anyone could purchase the patent at that value. The purchaser would have to honor contracts into which the previous patent holder had entered, to the extent that he could not increase the royalty charge or impose other restrictions.
The contracts themselves would have to be public contracts. That is, if one producer is allowed to apply a patented invention to a particular type of product at a particular royalty rate, then all producers would be allowed to produce the same product at the same royalty rate.
For the first year a patent is granted, the tax rate could well be zero. It would then gradually increase until, at the year of expiration, it consumes nearly the entire amount of the patent's self-assessed value. Naturally, the value of the patent would decrease as the tax rate increases and the expiration date approaches.
Tuesday, April 29, 2008
GeoLibertarianism Squares Two Circles
Geolibertarianism solves two problems that no other school of libertarianism claims to solve.
The Wikipedia article on geolibertarianism gets one nuance slightly wrong. Geolibertarians don't necessarily believe that all land is an unownable commons. Rather, some of us simply take very literally the Lockean proviso that homesteading an unowned resource (e.g. virgin land) must leave "as much and as good" for others. So we say there would be zero land value tax on you if there is available to others "as much and as good" land as that which you monopolize -- or if you allow the community to use the land you squat on in the same way that you use it. The land value tax only kicks in when monopoly rents are earned due to the Lockean proviso being violated. Such rents are a violation of individual rights under the Lockean analysis, and are thus aggression. The geolibertarian land value "tax" is not really a "tax", but rather is reparations for this aggression. (A LVT does not tax site improvements like buildings etc.)
Geolibertarianism thus solves the central conundrum of minarchism: how to finance the protection of life, liberty, and property without initiating force. Its solution even offers an unanticipated bonus: a non-force-initiating libertarian safety net for the poor. Geolibertarianism points out that in the state of nature there is always marginal but productive land available for use by the destitute, and that faithful historical observation of the Lockean proviso (leaving "as much and as good") should have always ensured that this remained the case even to this day. To the extent that it is no longer the case, excluding people from access to the natural productive opportunities on what used to be the commons is unjust -- i.e. is aggression. Therefore, where land is scarce its "ground rent" should be considered part of the commons, with each individual having an equal claim on it.
Technically, "ground rent" is is the excess production obtained by using a site in its most productive use, compared to the production obtained by applying equivalent inputs of labor and capital at the most productive site where the application doesn't require (additional) payments for use of the site. In other words, ground rent is the advantage you get from exclusive use of a site compared to the most productive available site that is not in use.
For more information, see my site http://earthfreedom.net/.
Friday, January 11, 2008
Tax Bads and Untax Goods With a Green Tax Shift
by Fred E. Foldvary
The tax reform that would best promote liberty, the environment, and prosperity is to tax bad things instead of good things. Labor, entrepreneurship, and wanted products are good things, yet these get taxed as though they were crimes that need to be punished. Pollution and congestion are bad things, yet these are in effect subsidized as though we wanted more of them. The forced redistribution of wealth from the poor to the rich is usually considered a bad thing, yet government makes this transfer with taxes and subsidies.
Good products and activities are those that are voluntary, not just for the buyer and seller, but also for others who may be affected. Generally, production, trade, and consumption are good things, as they provide the goods that people want. Bad products and activities are those that are not voluntary, as they coercively harm others. The prime examples of bads are pollution and congestion. Economists call these “negative externalities,” since they impose costs on others. For example, each extra car on a crowded road slows down the traffic for the other cars.
A free market maximizes social well being. Any tax on voluntary enterprise reduces social well being, but also, any subsidy reduces social welfare. In a pure free market, all economic activity is voluntary, and those who impose costs on others are obligated to compensate the victims.
Taxes on wages, business profits, goods, and exchanges impose two types of costs on the parties. The first cost is the tax burden, the funds the taxed people have to pay to the government. This is a burden to the taxpayers, but it is not a cost to the economy, as the funds represent resources transferred from taxpayers to the recipients.
The second cost is called the “excess burden” or “deadweight loss” caused by the tax. Suppose you are buying a car for $20,000 and there is a ten percent sales tax. The total cost is $22,000 and if you borrow the funds to pay with, you need to borrow an extra $2000, and pay interest on that extra amount. Those who would just barely be willing to buy the car at $20,000 will not do so at the higher cost, so the purchase and production of cars gets reduced. Even those who do pay the higher cost get less net benefit, as the difference from the most they are willing to pay and what they actually pay gets reduced, reducing their benefits from the goods.
The excess burden is even worse than that for some products. For example, for goods such as books that have a global market, the seller can’t raise the price, and the tax eats into the profit, and in many cases, that type of enterprise ceases to function, and is replaced by one which can bear the tax but possibly creates less output and employs fewer workers. Any intervention in the market that drives out some enterprises will replace them with less-valued enterprises, since otherwise those replacements would have been there in the first place.
Taxes on wages, business profits, buildings, and trade all have such a deadweight loss. The total deadweight loss from taxation in the U.S.A. has been estimated to be over ten percent of total income. This is a sheer waste of resources, and the loss is much greater over time, as the economy could have grown faster if not for this drag on productivity.
Subsidies also have a deadweight loss, since the burden of the tax is greater than the benefits to those who are subsidized. That’s because the subsidy gets some people to buy products at a lower price, but the extra benefit these people get from those goods is less than if they had bought the products they would have gotten if not for the subsidy. For example, suppose the government subsidizes pizza so consumers only pay a dime per slice. More folks would buy the cheap pizzas, but the value to them of the last extra slices is less than the cost of production, so this is really a waste of resources. With both punitive taxes and the handout of subsidies, resources are not allocated to where they are most wanted by those who would cover the costs.
The green tax shift would eliminate such excess burdens. It shifts public revenue to bad things and activities. When pollution crosses the owner’s property and enters the property of others, including people’s bodies, this is a trespass and a violation of others’ property rights. When there are only a few people or firms involved, they can negotiate a settlement, or the victim should be able to sue for damages. But when there are thousands, even millions, of people involved, lawsuits become impractical. In that case, an on-going pollution charge can compensate society for the damages. If the government levies the charge, it can take the form of a tax, but in substance, it is restitution and compensation for damages. In form, the pollution charge is a tax on a bad activity, committing aggression against others by polluting.
Why not just prohibit the pollution? Because, the products have social benefits, which would be lost if the goods are not allowed to be produced. A pollution charge equal to the damages will reduce the output to the optimal amount, where the harm and benefit are balanced, along with compensating society for that pollution emitted.
Regulations are less effective than pollution charges, because regulations do not let firms and individuals adjust their activities according to their own costs and benefits. With pollution levies, firms and individuals have the choice of reducing pollution or paying the charge, and they will do whichever of these is less costly.
Pollution permits that can be bought and sold are more effective than regulations, but the gain from a higher permit price goes to the permit holder. The advantage of pollution taxes is that the revenue from these charges can be used to replace punitive taxes, those with deadweight losses. If pollution taxes raise $500 billion in government revenue, and are used to, say, reduce income taxes, and they replace regulations, there is a double dividend: a cleaner environment, and greater productivity.
The same can be done with congestion. Tolls on crowded highways and streets, just high enough to let the traffic flow, put a charge on a bad activity, congestion, which eliminates it. Such tols can now be implemented with electronic devices that automatically record the charge without the car having to stop.
Congestion tolls would replace taxes such as on gasoline. Gasoline is good - it makes our cars go. Transportation is a good thing, and as such should not be taxed. What is bad is the outputs - pollution and congestion, not the input, gasoline. Those who drive clean cars on uncongested roads do no harm and should not be taxed. Moreover, the efficiency of gasoline use should be nobody’s business except the buyer. Why is it my problem if you waste resources you paid for? It’s your problem.
Cash subsidies to special interests such as farmers are obvious, but other subsidies are just as real and costly to society. Quotas that restrict imports raise the price of goods such as sugar, and are in effect a tax on consumers. The greatest subsidy of all is the implicit transfer of wealth from workers to landowners.
When government provides public works and civic services - such as streets, transit, parks, security, fire protection, and schools - these increase the productivity and benefits of the locations served, and increase the demand to be located there. That generates higher rents and real estate values. If, as is usually the case, most of the funds come from taxes on wages, in effect worker tenants get double billed. A worker-tenant pays a higher rent because of the territorial services, and then he has to pay taxes to finance them. The landowners get subsidized by getting rent and land value paid for by the taxes on wages, goods, and business profits. Since landowners tend to be wealthier than renters, taxing wages to pay for civic goods amounts to a forced redistribution of wealth from the poor to the rich.
Subsidies are bads, so a tax on land value or land rent is a tax on a bad. In substance, it is a payment for services that generate rent and land value. Unlike taxes on production, a tax on land value has no deadweight loss, since the land will not flee, shrink, or hide when taxed. If a landlord was already charging the market rent, a higher tax on land will not be passed onto the tenant, since that would create vacancies.
The supply of land area is fixed, and land has no cost of production, so the rent is a pure surplus that can be tapped for public revenue with no ill effect. It can even have a beneficial effect if lazy landowners were not putting their land to its most productive use, since the land-value tax is based on the highest and best use of the land as determined by the market prices of the neighborhood. After the tax is in place, a new land owner would have no tax burden, since the price of land would fall, and what the owner pays in the land tax, he saves in not having to pay mortgage interest.
Of course the same effect can take place if public works and civic services are privatized, as they are with condominiums, homeowner associations, and proprietary communities such as apartments and shopping centers. Members of condominiums pay a monthly assessment based on their membership and property rather than on their income or purchase of goods.
A complete green-tax shift would abolish taxes on wages, interest, dividends, transactions, and buildings, and replace these with charges for pollution, tolls on congested roads and streets, and the public collection of land rent. The pollution levy would also replace regulations and pollution permits. The economy would prosper from the elimination of the deadweight losses from both taxation and regulation.
Advocates of free markets should enthusiastically support the green tax shift, as this enhances liberty along with greater prosperity. There would be no more intrusive tax audits and no snooping into private financial affairs. There would be no tax evasion, since land cannot hide, and pollution levies are based on measured pollution. The penalty for refusal to pay the levy would be a loss of property, not prison. Entrepreneurship would be completely unshackled, and market prices and profits would no longer be distorted by taxes and subsidies, since levies on pollution and land value make users pay for the costs of their production and consumption.
Even if human activity is not contributing to global warming, the green tax shift is good for liberty and the economy. If pollution is causing climate change, then the reduction of harmful global warming would be a bonus.
Freedom is green, and the best environmental policy is a pure free market, since an inefficient use of resources needlessly destroys the environment. The promotion of a green tax shift would put the free market movement at the vanguard of the environmental and move it away form its current propensity to favor market-hampering regulation. With the green tax shift, environmentalists and free-marketeers will find common ground.
—–
Dr. Fred Foldvary teaches economics at Santa Clara University and is the author of several books including The Soul of Liberty, Public Goods and Private Communities, and the Dictionary of Free-Market Economics.
Good products and activities are those that are voluntary, not just for the buyer and seller, but also for others who may be affected. Generally, production, trade, and consumption are good things, as they provide the goods that people want. Bad products and activities are those that are not voluntary, as they coercively harm others. The prime examples of bads are pollution and congestion. Economists call these “negative externalities,” since they impose costs on others. For example, each extra car on a crowded road slows down the traffic for the other cars.
A free market maximizes social well being. Any tax on voluntary enterprise reduces social well being, but also, any subsidy reduces social welfare. In a pure free market, all economic activity is voluntary, and those who impose costs on others are obligated to compensate the victims.
Taxes on wages, business profits, goods, and exchanges impose two types of costs on the parties. The first cost is the tax burden, the funds the taxed people have to pay to the government. This is a burden to the taxpayers, but it is not a cost to the economy, as the funds represent resources transferred from taxpayers to the recipients.
The second cost is called the “excess burden” or “deadweight loss” caused by the tax. Suppose you are buying a car for $20,000 and there is a ten percent sales tax. The total cost is $22,000 and if you borrow the funds to pay with, you need to borrow an extra $2000, and pay interest on that extra amount. Those who would just barely be willing to buy the car at $20,000 will not do so at the higher cost, so the purchase and production of cars gets reduced. Even those who do pay the higher cost get less net benefit, as the difference from the most they are willing to pay and what they actually pay gets reduced, reducing their benefits from the goods.
The excess burden is even worse than that for some products. For example, for goods such as books that have a global market, the seller can’t raise the price, and the tax eats into the profit, and in many cases, that type of enterprise ceases to function, and is replaced by one which can bear the tax but possibly creates less output and employs fewer workers. Any intervention in the market that drives out some enterprises will replace them with less-valued enterprises, since otherwise those replacements would have been there in the first place.
Taxes on wages, business profits, buildings, and trade all have such a deadweight loss. The total deadweight loss from taxation in the U.S.A. has been estimated to be over ten percent of total income. This is a sheer waste of resources, and the loss is much greater over time, as the economy could have grown faster if not for this drag on productivity.
Subsidies also have a deadweight loss, since the burden of the tax is greater than the benefits to those who are subsidized. That’s because the subsidy gets some people to buy products at a lower price, but the extra benefit these people get from those goods is less than if they had bought the products they would have gotten if not for the subsidy. For example, suppose the government subsidizes pizza so consumers only pay a dime per slice. More folks would buy the cheap pizzas, but the value to them of the last extra slices is less than the cost of production, so this is really a waste of resources. With both punitive taxes and the handout of subsidies, resources are not allocated to where they are most wanted by those who would cover the costs.
The green tax shift would eliminate such excess burdens. It shifts public revenue to bad things and activities. When pollution crosses the owner’s property and enters the property of others, including people’s bodies, this is a trespass and a violation of others’ property rights. When there are only a few people or firms involved, they can negotiate a settlement, or the victim should be able to sue for damages. But when there are thousands, even millions, of people involved, lawsuits become impractical. In that case, an on-going pollution charge can compensate society for the damages. If the government levies the charge, it can take the form of a tax, but in substance, it is restitution and compensation for damages. In form, the pollution charge is a tax on a bad activity, committing aggression against others by polluting.
Why not just prohibit the pollution? Because, the products have social benefits, which would be lost if the goods are not allowed to be produced. A pollution charge equal to the damages will reduce the output to the optimal amount, where the harm and benefit are balanced, along with compensating society for that pollution emitted.
Regulations are less effective than pollution charges, because regulations do not let firms and individuals adjust their activities according to their own costs and benefits. With pollution levies, firms and individuals have the choice of reducing pollution or paying the charge, and they will do whichever of these is less costly.
Pollution permits that can be bought and sold are more effective than regulations, but the gain from a higher permit price goes to the permit holder. The advantage of pollution taxes is that the revenue from these charges can be used to replace punitive taxes, those with deadweight losses. If pollution taxes raise $500 billion in government revenue, and are used to, say, reduce income taxes, and they replace regulations, there is a double dividend: a cleaner environment, and greater productivity.
The same can be done with congestion. Tolls on crowded highways and streets, just high enough to let the traffic flow, put a charge on a bad activity, congestion, which eliminates it. Such tols can now be implemented with electronic devices that automatically record the charge without the car having to stop.
Congestion tolls would replace taxes such as on gasoline. Gasoline is good - it makes our cars go. Transportation is a good thing, and as such should not be taxed. What is bad is the outputs - pollution and congestion, not the input, gasoline. Those who drive clean cars on uncongested roads do no harm and should not be taxed. Moreover, the efficiency of gasoline use should be nobody’s business except the buyer. Why is it my problem if you waste resources you paid for? It’s your problem.
Cash subsidies to special interests such as farmers are obvious, but other subsidies are just as real and costly to society. Quotas that restrict imports raise the price of goods such as sugar, and are in effect a tax on consumers. The greatest subsidy of all is the implicit transfer of wealth from workers to landowners.
When government provides public works and civic services - such as streets, transit, parks, security, fire protection, and schools - these increase the productivity and benefits of the locations served, and increase the demand to be located there. That generates higher rents and real estate values. If, as is usually the case, most of the funds come from taxes on wages, in effect worker tenants get double billed. A worker-tenant pays a higher rent because of the territorial services, and then he has to pay taxes to finance them. The landowners get subsidized by getting rent and land value paid for by the taxes on wages, goods, and business profits. Since landowners tend to be wealthier than renters, taxing wages to pay for civic goods amounts to a forced redistribution of wealth from the poor to the rich.
Subsidies are bads, so a tax on land value or land rent is a tax on a bad. In substance, it is a payment for services that generate rent and land value. Unlike taxes on production, a tax on land value has no deadweight loss, since the land will not flee, shrink, or hide when taxed. If a landlord was already charging the market rent, a higher tax on land will not be passed onto the tenant, since that would create vacancies.
The supply of land area is fixed, and land has no cost of production, so the rent is a pure surplus that can be tapped for public revenue with no ill effect. It can even have a beneficial effect if lazy landowners were not putting their land to its most productive use, since the land-value tax is based on the highest and best use of the land as determined by the market prices of the neighborhood. After the tax is in place, a new land owner would have no tax burden, since the price of land would fall, and what the owner pays in the land tax, he saves in not having to pay mortgage interest.
Of course the same effect can take place if public works and civic services are privatized, as they are with condominiums, homeowner associations, and proprietary communities such as apartments and shopping centers. Members of condominiums pay a monthly assessment based on their membership and property rather than on their income or purchase of goods.
A complete green-tax shift would abolish taxes on wages, interest, dividends, transactions, and buildings, and replace these with charges for pollution, tolls on congested roads and streets, and the public collection of land rent. The pollution levy would also replace regulations and pollution permits. The economy would prosper from the elimination of the deadweight losses from both taxation and regulation.
Advocates of free markets should enthusiastically support the green tax shift, as this enhances liberty along with greater prosperity. There would be no more intrusive tax audits and no snooping into private financial affairs. There would be no tax evasion, since land cannot hide, and pollution levies are based on measured pollution. The penalty for refusal to pay the levy would be a loss of property, not prison. Entrepreneurship would be completely unshackled, and market prices and profits would no longer be distorted by taxes and subsidies, since levies on pollution and land value make users pay for the costs of their production and consumption.
Even if human activity is not contributing to global warming, the green tax shift is good for liberty and the economy. If pollution is causing climate change, then the reduction of harmful global warming would be a bonus.
Freedom is green, and the best environmental policy is a pure free market, since an inefficient use of resources needlessly destroys the environment. The promotion of a green tax shift would put the free market movement at the vanguard of the environmental and move it away form its current propensity to favor market-hampering regulation. With the green tax shift, environmentalists and free-marketeers will find common ground.
—–
Dr. Fred Foldvary teaches economics at Santa Clara University and is the author of several books including The Soul of Liberty, Public Goods and Private Communities, and the Dictionary of Free-Market Economics.
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