Let the rant begin:
I think it’s an absurd idea that things like labor are taxed at all (via income taxes), when labor is a productive activity. Meanwhile there are so many unproductive or outright harmful activities that don’t get taxed nearly enough! Land speculation, carbon emissions, other forms of pollution, monopolistic control of finite natural resources, etc.
Further, even from a solely economic point of view, taxing things discourages them and distorts the market. Taxing carbon is a known way to reduce carbon emissions. Why don’t we choose to distort the things we want to be distorted anyways, like pollution and rent-seeking behaviors?
Further, there is ample evidence to suggest we genuinely don’t need income taxes to fully fund our government. I (and many others) are in favor of 3 main types of taxes:
- Land value taxes
- Pigouvian (or externality) taxes
- Severance taxes
Land Value Taxes
A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements.[1] It is also known as a location value tax, a point valuation tax, a site valuation tax, split rate tax, or a site-value rating.
Land value taxes are generally favored by economists as they do not cause economic inefficiency, and reduce inequality.[2] A land value tax is a progressive tax, in that the tax burden falls on land owners, because land ownership is correlated with wealth and income.[3][4] The land value tax has been referred to as “the perfect tax” and the economic efficiency of a land value tax has been accepted since the eighteenth century.[1][5][6] Economists since Adam Smith and David Ricardo have advocated this tax because it does not hurt economic activity, and encourages development without subsidies.
LVT is associated with Henry George, whose ideology became known as Georgism. George argued that taxing the land value is most logical source of public revenue because the supply of land is fixed and because public infrastructure improvements would be reflected in (and thus paid for by) increased land values.[7]
https://en.wikipedia.org/wiki/Land_value_tax
In 1977, [Nobel prize-winning economist] Joseph Stiglitz showed that under certain conditions, beneficial investments in public goods will increase aggregate land rents by at least as much as the investments’ cost.[1] This proposition was dubbed the “Henry George theorem”, as it characterizes a situation where Henry George’s ‘single tax’ on land values, is not only efficient, it is also the only tax necessary to finance public expenditures.[2] Henry George had famously advocated for the replacement of all other taxes with a land value tax, arguing that as the location value of land was improved by public works, its economic rent was the most logical source of public revenue.[3]
Subsequent studies generalized the principle and found that the theorem holds even after relaxing assumptions.[4] Studies indicate that even existing land prices, which are depressed due to the existing burden of taxation on labor and investment, are great enough to replace taxes at all levels of government.[5][6][7]
Pigouvian Taxes
A Pigouvian tax (also spelled Pigovian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price). The tax is normally set by the government to correct an undesirable or inefficient market outcome (a market failure) and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product.[1] Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.[2]
https://en.wikipedia.org/wiki/Pigouvian_tax
A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.
https://archive.is/TYVWT#selection-2043.3-2043.318
Severance Taxes
Severance taxes are taxes imposed on the removal of natural resources within a taxing jurisdiction. Severance taxes are most commonly imposed in oil producing states within the United States. Resources that typically incur severance taxes when extracted include oil, natural gas, coal, uranium, and timber. Some jurisdictions use other terms like gross production tax.
https://en.wikipedia.org/wiki/Severance_tax
The key to Norway’s success in oil exploitation has been the special regime of ownership rights which apply to extraction: the severance tax takes most of those rents, meaning that the people of Norway are the primary beneficiaries of the country’s petroleum wealth. Instead of privatizing the resource rents provided by access to oil, companies make their returns off of the extraction and transportation of the oil, incentivizing them to develop the most efficient technologies and processes rather than simply collecting the resource rents. Exploration and development is subsidized by the Norwegian government in order to maximize the amount of resource rents that can be taxed by the state, while also promoting a highly competitive environment free of the corruption and stagnation that afflicts state-controlled oil companies.
https://progressandpoverty.substack.com/p/norways-sovereign-wealth-fund
Inequality
Specifically, I suggest that much of the increase in inequality is associated with the growth in rents — including land and exploitation rents (e.g., arising from monopoly power and political influence).
https://academiccommons.columbia.edu/doi/10.7916/d8-t92w-f529
Oh and bonus point for the fact that filing personal income taxes absolutely sucks and is an undue burden on the working class. With carbon (or other Pigouvian) taxes, only businesses would have to account for their carbon. With land value taxes, the government can easily calculate the value of land by similar statistical methods it uses for assessing property values for property taxes and then just tell you what you owe. With severance taxes, only businesses such as oil and mining and timber companies would have to do the accounting.
The part about filing personal income taxes (at least in my country) that drives me absolutely bonkers is that if you get the amount you owe wrong, they’ll contact you and tell you you were wrong and how much you actually owe.
If you are able to calculate this then why the fuck am I filling out this form, just tell me how much I owe you and I will send it
it has never made much sense to me that simply because you arrived on this planet before i did, that you should be granted a greater share of its resources than me.
Exactly! You do produce the value of your own wages, but you don’t produce the value of the land or natural resources in your possession. All of humanity ought to be the ones to benefit from the value of the land and earth’s natural splendor, not just a select few who staked their claims early.
Assuming the “We” you’re talking about is “The US government”, one of the big reasons a country like the US doesn’t punish bad behavior is competition.
Just like companies compete for your business, nation states compete for companies that increase GDP. I believe the US is afraid that if they tax companies, those companies will choose to leave the US instead of simply cleaning up their bad behavior.
That’s also why carbon tax (and other Pigouvian taxes) should be paired with Pigouvian tariffs. From the above-linked economists’ statement on carbon tax-and-dividend:
Global climate change is a serious problem calling for immediate national action. Guided by sound economic principles, we are united in the following policy recommendations.
I. A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.
II. A carbon tax should increase every year until emissions reductions goals are met and be revenue neutral to avoid debates over the size of government. A consistently rising carbon price will encourage technological innovation and large-scale infrastructure development. It will also accelerate the diffusion of carbon-efficient goods and services.
III. A sufficiently robust and gradually rising carbon tax will replace the need for various carbon regulations that are less efficient. Substituting a price signal for cumbersome regulations will promote economic growth and provide the regulatory certainty companies need for long- term investment in clean-energy alternatives.
IV. To prevent carbon leakage and to protect U.S. competitiveness, a border carbon adjustment system should be established. This system would enhance the competitiveness of American firms that are more energy-efficient than their global competitors. It would also create an incentive for other nations to adopt similar carbon pricing.
V. To maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in “carbon dividends” than they pay in increased energy prices.
https://archive.is/TYVWT#selection-1911.5-1911.46
Iirc, the EU is currently trying to implement carbon tax-and-tariff.
Edit: And the beauty of land value taxes is they can’t be evaded, nor do they cause capital flight. If you want to sell your land to avoid taxes, you gotta find someone to buy it. Whoever buys it now owes the taxes. Plus, it’s impossible to do business in a country without directly or indirectly relying on land, so the tax is merely the cost of doing business within whatever country implements it.
Further, land value taxes tend to reduce the upfront sale price of land, as they make land ownership an obligation as well as an asset. Cheaper land makes it easier to start businesses. With an appropriate LVT, the sale price of land would approach zero, and it would be functionally equivalent to renting that land from society.
That’s what they SAY the reason is. The real reason is much more simple: politicians are (mostly legally) bribed by the only ones rich enough to do so: rich people, corporations and special interest groups.
It’s not a necessary evil to avoid Apple moving their profits to Ireland or wherever for more favorable terms (they do that anyway ), it’s just plain ol’ corruption.
Haven’t many companies moved their head office to Ireland to save on taxes anyway?
Wow, really interesting post, thanks for this OP.
Some thoughts:
- According to one of your comments, the LVT won’t be passed on to the renters, because the supply of land doesn’t change and the land owner is already charging the maximum price the market can bear. This would be true in theory, but we’re talking about an essential good here. Land is something people will eventually need, otherwise they’ll be homeless. This is also called an ‘inelastic’ product, because the demand for the product won’t change a lot if the prices change. The same applies for food; if a piece of bread costs $1, maybe there is a demand of 10 million in a country, and if the same piece of bread is suddenly $10,000, the demand stays the same, because people will starve without it.
- In the original post, you say that you want to tax unproductive ways of earning money (such as owning land). What about financial securities? Things such as shares (as long as they’re not bought from the company directly), bonds, stock dividends, etc. Maybe also tax stock buybacks, as they’re often (ab)used to create artificial scarcity and increase the stock value (aka increasing profits for shareholders).
- with ‘negative externalities’ do you mean everything that has a negative external impact? Obviously carbon emission is an example, but what about something like smoking? When people smoke, they have a higher chance of getting lung cancer, therefore putting a higher burden on our healthcare system and additionally potentially negatively influencing others who have accidentally inhaled the smoke caused by the smoker. Would you tax this?
- Would you also tax owners of cars that use petrol / diesel instead of electricity? They also produce carbon emissions. A negative thing is that logistics can become very expensive with such a tax and additionally lots of people use the car to do something productive (such as going to work or school), in which case their productivity is kind of taxed, because their productivity is producing co2 emissions.
- Getting rid of income taxes obviously increases the amount of money people can spend, which will probably increase the demand for goods. When demand increases, but the supply doesn’t, there will be a higher inflation, which will negatively impact people who have less money (or are dependent on government welfare and are unemployed).
Now that I have typed all of this, I feel like a lot of these points can be solved by government spending (for example, provide people with free public transport, so they no longer have to use the car to get to work, increase the unemployment benefits based on the inflation index), but I’m still commenting this lol
Edit: BTW, the constitutions are generally written by rich men. So it’s not really surprising to see how the system that they have designed are beneficial towards the rich. I mean, the idea that I can have $10, invest it, wait for a while, and suddenly have $20 without actually putting in any effort is kinda dystopian to think about, because it favours the rich by having exponential growth of capital.
Thanks for the in-depth reply!
According to one of your comments, the LVT won’t be passed on to the renters, because the supply of land doesn’t change and the land owner is already charging the maximum price the market can bear. This would be true in theory, but we’re talking about an essential good here. Land is something people will eventually need, otherwise they’ll be homeless. This is also called an ‘inelastic’ product, because the demand for the product won’t change a lot if the prices change. The same applies for food; if a piece of bread costs $1, maybe there is a demand of 10 million in a country, and if the same piece of bread is suddenly $10,000, the demand stays the same, because people will starve without it.
This is actually what makes land special compared to almost every other good. The supply of land is perfectly inelastic, i.e., you cannot create nor destroy land, while the demand for land is merely regularly inelastic. If land prices are high, people can do things like move back in with their parents, move in with roommates, sell their car to not need to pay for parking (parking takes up land), etc. Because the supply is perfectly inelastic and the demand not perfectly inelastic is why, in theory, land value taxes cannot be passed on to tenants. This is borne out in practice, as well. This site describes far better than I can about the empirical evidence for this: https://www.gameofrent.com/content/can-lvt-be-passed-on-to-tenants.
In the original post, you say that you want to tax unproductive ways of earning money (such as owning land). What about financial securities? Things such as shares (as long as they’re not bought from the company directly), bonds, stock dividends, etc. Maybe also tax stock buybacks, as they’re often (ab)used to create artificial scarcity and increase the stock value (aka increasing profits for shareholders).
I’d be hesitant towards some of these because capital investments are still productive. One example of a capital investment is my education. My degrees cost quite a bit of time and money and opportunity cost, and the higher wages I now earn because of my higher labor productivity are the reward for spending time and money and forgoing income investing in my own education. As a general principle, I think people ought to either be doing productive labor themselves, or at least investing their money into generating new wealth. I’d rather see investments in factories and education than in land speculation. My inclination would generally be to tax land, externalities, and severance first, and then see if more is necessary beyond that. Part of why is, as Stiglitz showed, LVT is the only tax necessary to fund all government expenditures, and LVT is a uniquely elegant tax: it’s basically impossible to evade, remarkably easy to calculate and administer, and requires only tracking who owns what land (something we already do) as opposed to tracking every single individual’s private financials (much more complex and invasive, imo). However, I’d be open to any individual tax that one could show would target speculation/rent-seeking and would have more benefits to society than costs to implement.
with ‘negative externalities’ do you mean everything that has a negative external impact? Obviously carbon emission is an example, but what about something like smoking? When people smoke, they have a higher chance of getting lung cancer, therefore putting a higher burden on our healthcare system and additionally potentially negatively influencing others who have accidentally inhaled the smoke caused by the smoker. Would you tax this?
In a perfect world, yes, all externalities would be taxed, but practically it would be incredibly hard to tax all. Like I’m sure the engagement-driven algorithms of most mainstream social media have some bad externalities, but those are extremely hard to quantify and tax without having unintended side effect. Carbon is easier to quantify and tax, however, Same with nitrogen fertilizers (nitrogen pollution), PFAS pollutants, plastic pollution, etc. Regarding addictive behaviors/substances like tobacco and sugar, I probably would want a Pigouvian tax on them. However, the addictive nature of them means that more complex policy would likely be necessary to actually dissuade smoking. An added sugars tax might be a good way to combat the epidemic of adding sugars (in all their forms) to anything and everything. Part of the reason manufacturers add them is because they’re a dirt cheap way to easily make junk food taste better to the average person.
Would you also tax owners of cars that use petrol / diesel instead of electricity? They also produce carbon emissions. A negative thing is that logistics can become very expensive with such a tax and additionally lots of people use the car to do something productive (such as going to work or school), in which case their productivity is kind of taxed, because their productivity is producing co2 emissions.
Yes, this would be borne out in significantly higher prices paid at the pump for their fuel. It would, however, incentivize people to find more carbon-efficient ways to live their lives. Car-dependent suburban sprawl is both environmentally and fiscally unsustainable as it is, and our economy would be improved by using more micromobility, walking, and transit. Of course, a big part of enabling this would be by abolishing restrictive zoning and parking minimums. At least in North America, it’s literally illegal to build dense, walkable, mixed-use neighborhoods on the vast majority of urban land, and nearly every single city has outdated, pseudoscientific parking minimum laws that dictate arbitrary minimum amounts of parking for businesses and housing. If we simply made it actually legal to make denser communities, people simply wouldn’t need an expensive, polluting car and tons of city real estate wasted on car storage just to do things like get groceries or go to school/work. Also considering the average annual cost of car ownership (including depreciation) is something like $10k, car-dependency creates a huge barrier to entry for people trying to access good jobs and schools to escape poverty.
Getting rid of income taxes obviously increases the amount of money people can spend, which will probably increase the demand for goods. When demand increases, but the supply doesn’t, there will be a higher inflation, which will negatively impact people who have less money (or are dependent on government welfare and are unemployed).
Yes, but it depends on the goods. Land value taxes (and lifting onerous land use regulations like parking minimums and exclusionary zoning) have been shown to reduce stabilize and reduce housing costs. LVT by incentivizing more development and cooling speculative pressure on land prices and the others by allowing more supply to be, well, supplied. Reducing land prices can vastly reduce the barriers to entry for many businesses, who could help increase overall supply in other sectors of the economy. Plus, if overall purchasing power goes up, who’s to say supply for ordinary goods won’t go up as well? In the short term there may be an adjustment period, but it’s not like I’d recommend switching to all LVT, no income taxes overnight; I’d want a phase-in period to give society time to adjust and plan around the coming changes.
Now that I have typed all of this, I feel like a lot of these points can be solved by government spending (for example, provide people with free public transport, so they no longer have to use the car to get to work, increase the unemployment benefits based on the inflation index), but I’m still commenting this lol
I agree completely. I (and many people of the same ideology re: LVT as me, aka Georgists) also support a citizen’s dividend/UBI. Basically the money the government collects from LVT, externality taxes, and severance taxes should go back into society in the form of just straight cash, infrastructure and public goods, and subsidizing positive externalities such as education and public research and rewilding/conservation and so forth.
But yeah, overall my view is a combination of pragmatism and idealism. Sure it’s nice to strive for the ideal, but we want to at least get as close as possible via pragmatic, economically grounded policies. And I just think it’s neat that a lot of these policies (such as LVT) can simultaneously reduce inequality and increase prosperity and reduce wastage.
Edit: spelling
This is actually what makes land special compared to almost every other good. The supply of land is perfectly inelastic, i.e., you cannot create nor destroy land
Don’t say that to the Netherlands lol (they’ve created an entire province from the sea)
while the demand for land is merely regularly inelastic. If land prices are high, people can do things like move back in with their parents, move in with roommates, sell their car to not need to pay for parking (parking takes up land), etc. Because the supply is perfectly inelastic and the demand not perfectly inelastic is why, in theory, land value taxes cannot be passed on to tenants. This is borne out in practice, as well. This site describes far better than I can about the empirical evidence for this: https://www.gameofrent.com/content/can-lvt-be-passed-on-to-tenants.
This does sound very intriguing, and I think you (and your source!) are right. The tenants / property owners are already applying the highest possible prices on their renters, and can therefore not afford to increase prices (because it leads to customer loss). Simultaneously, the property owners can’t afford to NOT have any renters, because they will lose money. (This only applies if the LVT is higher than the increase of their land’s value). This therefore ensures that the land owner will have affordable prices :D.
I’d be hesitant towards some of these because capital investments are still productive.
All capital investments? If I buy Apple stock from you, I wait for the market price to increase and then sell it again. What have I contributed by doing this? I have not invested directly into a company (I bought the share from you, not from Apple itself) nor have I solved world hunger. I simply spent money, waited a bit and then earned more money. I feel like these kind of useless profits should be taxed; additionally, any dividend should be taxed as well, because in an ideal world, the profits would be invested back into the company, which leads to more innovation and an increase in wages.
One example of a capital investment is my education. My degrees cost quite a bit of time and money and opportunity cost, and the higher wages I now earn because of my higher labor productivity are the reward for spending time and money and forgoing income investing in my own education.
I think you’re talking about (human capital)[https://en.wikipedia.org/wiki/Human_capital], and I agree with this. This is also the reason why public education is free (despite being quite expensive). Additionally, I feel like all student loans should be with 0% interest, for this specific reason.
As a general principle, I think people ought to either be doing productive labor themselves, or at least investing their money into generating new wealth.
Do people always have to generate more wealth? Can’t they just be content with having some wealth and live happily ever after with their wealth, without the perpetuating need to create more? I feel like this is the kind of mindset billionaires have; when they have 100 billion dollars, they aren’t satisfied, because they could have 101 billion dollars. And when they got 101 billion, they’ll go for the 102 billion, etc.
I’d rather see investments in factories and education than in land speculation. My inclination would generally be to tax land, externalities, and severance first, and then see if more is necessary beyond that.
What other things wuold you tax besides land, negative external effects and severances?
Part of why is, as Stiglitz showed, LVT is the only tax necessary to fund all government expenditures, and LVT is a uniquely elegant tax: it’s basically impossible to evade, remarkably easy to calculate and administer, and requires only tracking who owns what land (something we already do) as opposed to tracking every single individual’s private financials (much more complex and invasive, imo).
I just spent some time thinking on how to evade land taxes, and I can’t think of anything. However, I’m pretty sure that somewhere out there, there’s a genius tax evader who will think of some way to cheat their way out of paying taxes; even the land value taxes.
In a perfect world, yes, all externalities would be taxed, but practically it would be incredibly hard to tax all. Like I’m sure the engagement-driven algorithms of most mainstream social media have some bad externalities, but those are extremely hard to quantify and tax without having unintended side effect. Carbon is easier to quantify and tax, however, Same with nitrogen fertilizers (nitrogen pollution), PFAS pollutants, plastic pollution, etc. Regarding addictive behaviors/substances like tobacco and sugar, I probably would want a Pigouvian tax on them. However, the addictive nature of them means that more complex policy would likely be necessary to actually dissuade smoking. An added sugars tax might be a good way to combat the epidemic of adding sugars (in all their forms) to anything and everything. Part of the reason manufacturers add them is because they’re a dirt cheap way to easily make junk food taste better to the average person.
It may be difficult, but with enough bureaucracy and a functioning IRS, it should be possible. But besides that, I guess you have a point there and to combat addictive behaviors, people will certainly need more than a new tax policy.
Yes, this would be borne out in significantly higher prices paid at the pump for their fuel. It would, however, incentivize people to find more carbon-efficient ways to live their lives. Car-dependent suburban sprawl is both environmentally and fiscally unsustainable as it is, and our economy would be improved by using more micromobility, walking, and transit. Of course, a big part of enabling this would be by abolishing restrictive zoning and parking minimums. At least in North America, it’s literally illegal to build dense, walkable, mixed-use neighborhoods on the vast majority of urban land, and nearly every single city has outdated, pseudoscientific parking minimum laws that dictate arbitrary minimum amounts of parking for businesses and housing. If we simply made it actually legal to make denser communities, people simply wouldn’t need an expensive, polluting car and tons of city real estate wasted on car storage just to do things like get groceries or go to school/work. Also considering the average annual cost of car ownership (including depreciation) is something like $10k, car-dependency creates a huge barrier to entry for people trying to access good jobs and schools to escape poverty.
You’re right; the infrastructure in the US is very car-based, which is unfortunate. In Europe (where I live), we can walk from place to place and the public transport is generally sufficient to move around (at least, for me). However, to make the switch from car-dependent infrastructure to dense, walkable infrastructure does cost a lot of money and how would that be financed? Could everything be financed by the LVT, pigouvian and severance taxes? Also, to add to your idea, I think more comprehensive and free public transport would also be a huge way to convince people to use a train instead of a car. Also add more bicycle lanes as well, for the shorter distances (< 20km).
Yes, but it depends on the goods. Land value taxes (and lifting onerous land use regulations like parking minimums and exclusionary zoning) have been shown to reduce stabilize and reduce housing costs. LVT by incentivizing more development and cooling speculative pressure on land prices and the others by allowing more supply to be, well, supplied. Reducing land prices can vastly reduce the barriers to entry for many businesses, who could help increase overall supply in other sectors of the economy. Plus, if overall purchasing power goes up, who’s to say supply for ordinary goods won’t go up as well? In the short term there may be an adjustment period, but it’s not like I’d recommend switching to all LVT, no income taxes overnight; I’d want a phase-in period to give society time to adjust and plan around the coming changes.
I’ve spent 10min staring at this, to come up with something that can debunk this, but I can’t come up with anything hahaha. I think you’re right here, yeah.
While replying to this comment, I came up with another thing: What if someone, who owns a house and lives in it, becomes unemployed? I mean, every landowner will have to pay land value taxes, and I assume these taxes won’t be temporarily cancelled. If someone suddenly becomes unemployed (maybe a recession or an accident which resulted in a lost limb?), they won’t have a stable income anymore and if they don’t have any saved money, they will be unable to pay LVT. What’s going to happen in this situation? While the LVT certainly does have advantages to distribute wealth more equally across society, this does seem like a problem for the poor, right? I mean, a rich person has plenty of saved money and will be able to pay LVT, but a poor person doesn’t.
Something else that came to mind was when will the LVT be paid? Is it paid annually, monthly, or is it paid when the landowner dies? If it’s paid annually or monthly, then it could be very hard for poor people with small plots of land to pay the LVT. Also, what kind of percentage of the land value would the tax be? 10%? 20%?
P.S. I love this interaction lol, because it forces me to think about economics and market mechanics, which is always pretty interesting to analyze and think about. Thank you for this :D
Thanks for all the responses again! I agree that this is a fun interaction, and this is what I love most about platforms like lemmy – you can have random in-depth conversations about tax policy with someone on the other side of the planet.
Don’t say that to the Netherlands lol (they’ve created an entire province from the sea)
This is where it becomes semantic in that the “land” in “land value taxes” is more akin to “location”. When talking about land reclamation from the sea, the reclamation would be an improvement (and thus untaxed), and it would only be the value of the location (derived primarily by proximity to businesses, services, infrastructure, jobs, etc.). Using this concept of economic land also suggest other potential types of “land” value taxes, e.g., the electromagnetic spectrum, domain names on the internet (to avoid cybersquatting), low earth orbits (because orbits can get cluttered if there are too many satellites or debris), etc.
All capital investments? If I buy Apple stock from you, I wait for the market price to increase and then sell it again. What have I contributed by doing this? I have not invested directly into a company (I bought the share from you, not from Apple itself) nor have I solved world hunger. I simply spent money, waited a bit and then earned more money. I feel like these kind of useless profits should be taxed; additionally, any dividend should be taxed as well, because in an ideal world, the profits would be invested back into the company, which leads to more innovation and an increase in wages.
Yeah, I agree this is where things get messier. There are clearly many capital investments that are productive, but many like speculative day-trading of stocks that are not. For example, it’s very common in tech to pump up your profitability right before your IPO (by doing unsustainable business practices to boost revenues and cut expenses) so you and your early investors can cash out. The majority of tech startups’ stocks drop after the price at IPO. It essentially leaves those who buy in at IPO holding the bag for the early investors’ partially unearned profits. Where it gets sticky in this example is those profits are only partially unearned, i.e., some is legitimate returns on their investment in a productive new startup, but some is from overselling to eager and naive public investors at IPO thanks to asymmetry of information. (Asymmetrical information is a classic cause of market failure; if people don’t know the true value of what you’re selling them, they won’t buy the optimal amount at the optimal price.)
As for solutions, I actually don’t know. Is it easy or even possible for a tax to discern between the earned vs unearned profits of something like that? If we do try to solve this market failure via taxes, is it easy to evade with fancy accounting, or does it cause unintended side effects? I don’t really know enough about finance to propose many solutions here. At least in theory, the purpose of a stock market is to allow anyone to invest in a company, allowing that company to raise funds for growth and reinvestment, and we certainly don’t want to discourage that, but of course speculative day-trading is not good either.
I think you’re talking about (human capital)[https://en.wikipedia.org/wiki/Human_capital], and I agree with this. This is also the reason why public education is free (despite being quite expensive). Additionally, I feel like all student loans should be with 0% interest, for this specific reason.
I agree 100%. Even beyond the investment in productivity factor, education has positive externalities such as lower crime rates, better public health, fewer teenage pregnancies, and better-informed voters, hence why we should publicly subsidize it. Tax the negative externalities, subsidize the positive externalities. On the part of the student themselves, however, it still does incur an unavoidable opportunity cost, as time spent studying is time not spent working and earning money.
Do people always have to generate more wealth? Can’t they just be content with having some wealth and live happily ever after with their wealth, without the perpetuating need to create more? I feel like this is the kind of mindset billionaires have; when they have 100 billion dollars, they aren’t satisfied, because they could have 101 billion dollars. And when they got 101 billion, they’ll go for the 102 billion, etc.
I agree, and I think this is actually one thing a more Georgist system would enable. Instead of spending our “productive time” like crabs in a bucket, rent-seeking and cheating each other, if we spent our “productive time” doing productive labor and making productive investments, we wouldn’t need to do nearly so much of it to achieve the same quality of life. If we had citizen’s dividend/UBI, Pigouvian subsidies for things like tree-planting and other public works (with positive externalities), free education, much cheaper land + housing, and much lower barriers to business creation, I think the negotiating power between employees and employers would be leveled tremendously.
Currently, I’m working as an engineer in a niche field, which means I get good pay, good treatment, and good work-life balance. This is because it’s hard to replace me, because plenty of people want to hire my skillset but not so many people have it to offer. If the average laborer had more fallback options – like UBI, pursuing higher education, planting trees for money, etc. – and less economic stress – like cheaper land and housing thanks to solving the housing crisis – I think they could naturally demand more pay, better conditions, and better work-life balance. I don’t know if you saw it in the Netherland, but I know the US and Canada saw something like this with the worker shortage during and post-COVID with the “great resignation” as they called it; suddenly there were lots of people needing labor, but not as many people providing it, meaning employers had to offer better deals to the workers.
What other things wuold you tax besides land, negative external effects and severances?
Main thing is I would primarily try more forms of those basic three categories of taxes. For example, a vehicle weight tax to account for the negative externalities associated with vehicle weight (e.g., the Fourth Power Law). A hefty pedestrian/cyclist fatality tax applied to automakers every time a pedestrian/cyclist is killed by one of their cars so as to encourage designs that protect the people outside of cars, not just inside of them.
I would also be in favor of congestion pricing to tackle the issues of congestible public goods, e.g., traffic on roads. Arguably this is a form of land value tax or Pigouvian tax. (That’s the beautiful thing about a lot of these taxes is they’re kind of isomorphic to one another.)
In agriculture/environment, I would also be in favor of a nitrogen + phosphorus tax applied to fertilizer manufacturers to account for the externalities of fertilizer runoff. If it’s practically feasible, also a severance tax on soil depletion by unsustainable agricultural practices and a carbon tax on soil carbon emissions from loss of soil carbon (also due to those same unsustainable agricultural practices).
I don’t know enough about finance to personally propose taxes for it, but I’m sure one could argue for some specific taxes to address some of the previously-mentioned issues in stock speculation and IPOs.
I’ve seen arguments for Harberger taxes on intellectual property as part of IP reform. My personal thoughts is to just abolish patents and publicly subsidize open R&D instead, through prizes, grants, and large public projects like the Apollo Program. After all, not all R&D is suited to private development anyways, e.g., nuclear fusion, which is far too expensive and far too uncertain to be an attractive private investment. I could, however, see the argument for some form of Harberger taxes in conjunction with more IP reforms.
(continued in reply due to length limits)
You’re right; the infrastructure in the US is very car-based, which is unfortunate. In Europe (where I live), we can walk from place to place and the public transport is generally sufficient to move around (at least, for me). However, to make the switch from car-dependent infrastructure to dense, walkable infrastructure does cost a lot of money and how would that be financed? Could everything be financed by the LVT, pigouvian and severance taxes? Also, to add to your idea, I think more comprehensive and free public transport would also be a huge way to convince people to use a train instead of a car. Also add more bicycle lanes as well, for the shorter distances (< 20km).
Yes, according to the Henry George Theorem, public goods can be funded entirely by their resulting increase in LVT revenues. This paper extended the results of the HGT to congestible local public goods as well, e.g., roads, transit, education, healthcare, eldercare, childcare, museums, etc.
What if someone, who owns a house and lives in it, becomes unemployed? I mean, every landowner will have to pay land value taxes, and I assume these taxes won’t be temporarily cancelled. If someone suddenly becomes unemployed (maybe a recession or an accident which resulted in a lost limb?), they won’t have a stable income anymore and if they don’t have any saved money, they will be unable to pay LVT. What’s going to happen in this situation? While the LVT certainly does have advantages to distribute wealth more equally across society, this does seem like a problem for the poor, right? I mean, a rich person has plenty of saved money and will be able to pay LVT, but a poor person doesn’t.
I think there are two main scenarios to consider here: 1) the short-term transition period, and 2) the long-term equilibrium. In the short term, yes, there are definitely some owners of single-family detached homes who would need to move, but I think that’s an unavoidable part of solving the housing crisis anyways. I don’t know the situation in the Netherland, but in the US and Canada we have the issue of almost all our urban land being zoned for SFHs, and simply there is no fixing the housing crisis here without many of those being redeveloped into missing middle housing or denser. However, the beauty of LVT is it’s meant to target the full rental value of the land, i.e., how much you could rent the land for on the open market. So if you find yourself unable to pay the LVT due to unfortunate circumstances, because you still possess the land, you have the option of renting out the land to pay it, and yourself renting someplace cheaper that you can afford off of UBI/citizen’s dividend. After all, the LVT due is supposed to be the rental value of the land, i.e., if you can rent it for $100 a month, you pay $100 a month in taxes. Realistically, though, due to difficulty in appraising with such high degree of accuracy, I’ve generally seen it recommended you shoot for 85% to 100% of the rental value of land. 'Tis better to slightly under-appraise than to over-appraise.
In the long-term, I think the housing market would be vastly more affordable and people economically better off, with very few SFHs on high-value land (basically only mansions owned by the rich who can afford to bleed money on LVT payments). The reduction in evictions due to failure to pay rent would be vastly greater than the increase in evictions because of LVT, I would imagine. After all, our current system evicts you if you are no longer capable of paying, but we don’t even have a UBI/citizen’s dividend to help you meet those payments under extenuating circumstances such as sudden disability.
Something else that came to mind was when will the LVT be paid? Is it paid annually, monthly, or is it paid when the landowner dies? If it’s paid annually or monthly, then it could be very hard for poor people with small plots of land to pay the LVT. Also, what kind of percentage of the land value would the tax be? 10%? 20%?
This is actually an open question. I’d personally be fine with annually or monthly. I’ve seen proposals for paying it when the landowner dies as an option to protect pensioners. Perhaps a land value transfer tax that is applicable for certain people who qualify? Downside is any conditions like that 1) introduce significant bureaucracy, and 2) introduce an avenue by which to potentially evade the LVT. As for percentage, the idea would be to target the full rental value of the land, but even smaller land value taxes can still have benefits, just not as many. If we did a revenue-neutral shift from property to land value taxes, for instance, we’d still need income taxes, but we could still cool upward speculative pressure on land prices such as seen in the Australian Capital Territory (which has a pretty milquetoast LVT, nowhere near the full-LVT system I’m arguing for).
Yeah, I agree this is where things get messier. There are clearly many capital investments that are productive, but many like speculative day-trading of stocks that are not. For example, it’s very common in tech to pump up your profitability right before your IPO (by doing unsustainable business practices to boost revenues and cut expenses) so you and your early investors can cash out. The majority of tech startups’ stocks drop after the price at IPO. It essentially leaves those who buy in at IPO holding the bag for the early investors’ partially unearned profits. Where it gets sticky in this example is those profits are only partially unearned, i.e., some is legitimate returns on their investment in a productive new startup, but some is from overselling to eager and naive public investors at IPO thanks to asymmetry of information. (Asymmetrical information is a classic cause of market failure; if people don’t know the true value of what you’re selling them, they won’t buy the optimal amount at the optimal price.) As for solutions, I actually don’t know. Is it easy or even possible for a tax to discern between the earned vs unearned profits of something like that? If we do try to solve this market failure via taxes, is it easy to evade with fancy accounting, or does it cause unintended side effects? I don’t really know enough about finance to propose many solutions here. At least in theory, the purpose of a stock market is to allow anyone to invest in a company, allowing that company to raise funds for growth and reinvestment, and we certainly don’t want to discourage that, but of course speculative day-trading is not good either.
You can actually kind of tax these kind of capital investments, because there is a difference between the Apple Inc. shares I buy from you vs the shares I buy directly from Apple Inc. The shares I buy from you, are just called ‘shares’ whereas the shares I buy from the company are ‘issued shares’, which basically means that the shares are recently ‘issued’ (aka being made available to the public). Could a tax agency track who buys which shares and what type of share they are? Yes, with enough resources and manpower, definitely. The Dutch tax agency already taxes investments and they could probably track whether you’ve bought an issued share or a normal share (or a preference share). The tax agency could decide to tax transactions of ordinary shares, but grant exemptions to issued shares, because the issued shares actually contribute to the economy. Though this does lead to a loophole where someone could just set up their own small LLC, start an IPO, invest all their personal wealth and buy stocks, and then just request a tax exemption for this (similar to how people set up their own non-profits and donate to that). And about your point of the asymmetric information: Yes, that’s true, the company could lie about their productivity and/or future plans, but that’s the risk about investing, and it doesn’t only apply to new startups, but also to established corporations. The risk can’t be eliminated, and it’s just a thing that’s part of investing.
Currently, I’m working as an engineer in a niche field, which means I get good pay, good treatment, and good work-life balance. This is because it’s hard to replace me, because plenty of people want to hire my skillset but not so many people have it to offer. If the average laborer had more fallback options – like UBI, pursuing higher education, planting trees for money, etc. – and less economic stress – like cheaper land and housing thanks to solving the housing crisis – I think they could naturally demand more pay, better conditions, and better work-life balance.
Well yeah, this makes sense, because your wage is based on how hard it is to replace you, not about how much you contribute to society or how good you are at your job. Additionally, I think this is the reason why the elite classes in our society usually try and ensure that the labor class is always too poor to actually stand up for themselves; too poor to have a retirement (and stop working), too poor to have fallback options, and too poor to go on strike. Simultaneously, they don’t want the inequality to become big, because otherwise you’ll have a big group of people with nothing to lose, except their (probably) worthless lives. And thus a repeat of the French Revolution in 1789 will occur, where the masses will have had enough of the oppression and take over the country. (This is also what Marx said would happen, with the violent uprising of the proletariat). Anyway, I feel like I’ve completely changed the conversation subject now; from taxes to Marxist class theory.
(Continued in reply)
I don’t know if you saw it in the Netherland, but I know the US and Canada saw something like this with the worker shortage during and post-COVID with the “great resignation” as they called it; suddenly there were lots of people needing labor, but not as many people providing it, meaning employers had to offer better deals to the workers.
Yup, we’ve also had it here. It’s kinda funny to see how employers refuse to increase wages, yet complain there aren’t any people willing to work for them.
A hefty pedestrian/cyclist fatality tax applied to automakers every time a pedestrian/cyclist is killed by one of their cars so as to encourage designs that protect the people outside of cars, not just inside of them.
Oooh, this is interesting. Alright, question: If a car is on autopilot (like the Tesla cars who can drive themselves) kill someone, who’s responsible? The driver, the programmer of the driving software, the company, someone else? Also, how would a car be designed to make it safer for people outside the cars? Put up a bunch of pillows on the sides or… ?
I don’t know enough about finance to personally propose taxes for it, but I’m sure one could argue for some specific taxes to address some of the previously-mentioned issues in stock speculation and IPOs.
I would suggest a tax on dividend (this would encourage the shareholders to re-invest the money into the company, instead of just giving it away to the shareholders), and a tax on buying non-issued shares (This would discourage investors into buying shares that doesn’t directly benefit the company itself).
I’ve seen arguments for Harberger taxes on intellectual property as part of IP reform. My personal thoughts is to just abolish patents and publicly subsidize open R&D instead, through prizes, grants, and large public projects like the Apollo Program. After all, not all R&D is suited to private development anyways, e.g., nuclear fusion, which is far too expensive and far too uncertain to be an attractive private investment. I could, however, see the argument for some form of Harberger taxes in conjunction with more IP reforms.
Well, I guess this is it. After a couple of long essays, we’ve finally hit a disagreement. I think that this is not a good idea (to put it lightly), because it would discourage innovation and creativity. Furthermore, extremely expensive technology (such as nuclear fusion) would be better funded by private capital / investors than the government. Though the government could definitely fund it (The Netherlands has a government fund called ‘Invest NL’ which basically gives away grants of tens of millions of euros to private companies), it’s too expensive to completely subsidize it. Some technologies cost hundreds of billions of euros to make and research, which would probably result into a situation where the majority of the government budget is giving away grants to research institutions. Instead, allowing private investors to invest into companies, acquire patents and such would allow science to flourish (as there is plenty of money in the private sector). To be clear, I’m not against the government subsidizing R&D, I’m against R&D being completely dependent on government subsidies. Also, some of the most expensive technology is already being funded by the government, such as the EU Chip Act which grants more than 40 billion euros to chip companies.
Yes, according to the Henry George Theorem, public goods can be funded entirely by their resulting increase in LVT revenues
Then why has nobody ever done this before? I mean, if a random internet stranger such as you can come up with this, then why can’t a government policy maker?
I think there are two main scenarios to consider here: 1) the short-term transition period, and 2) the long-term equilibrium. In the short term, yes, there are definitely some owners of single-family detached homes who would need to move, but I think that’s an unavoidable part of solving the housing crisis anyways. I don’t know the situation in the Netherland, but in the US and Canada we have the issue of almost all our urban land being zoned for SFHs, and simply there is no fixing the housing crisis here without many of those being redeveloped into missing middle housing or denser. However, the beauty of LVT is it’s meant to target the full rental value of the land, i.e., how much you could rent the land for on the open market. So if you find yourself unable to pay the LVT due to unfortunate circumstances, because you still possess the land, you have the option of renting out the land to pay it, and yourself renting someplace cheaper that you can afford off of UBI/citizen’s dividend. After all, the LVT due is supposed to be the rental value of the land, i.e., if you can rent it for $100 a month, you pay $100 a month in taxes. Realistically, though, due to difficulty in appraising with such high degree of accuracy, I’ve generally seen it recommended you shoot for 85% to 100% of the rental value of land. 'Tis better to slightly under-appraise than to over-appraise.
I guess you’re right and I think it’s a bit disappointing that the LVT would displace poor families, yet simultaneously the government could probably fund a free homeless shelter from the LVT revenues I guess. No perfect policy can be made though, as everything has its disadvantages, including the LVT.
This is actually an open question. I’d personally be fine with annually or monthly. I’ve seen proposals for paying it when the landowner dies as an option to protect pensioners. Perhaps a land value transfer tax that is applicable for certain people who qualify? Downside is any conditions like that 1) introduce significant bureaucracy, and 2) introduce an avenue by which to potentially evade the LVT. As for percentage, the idea would be to target the full rental value of the land, but even smaller land value taxes can still have benefits, just not as many.
I honestly don’t think the bureaucracy is such a big problem, as long as it can be significantly automated so that it doesn’t become a big burden for the tax agency.
I feel like such a tax should be affordable though, at least for the middle class and poor people. So I’m not sure if a monthly tax would be affordable. Instead, I would opt for an annual tax of like 20% or something. I mean, people already pay income taxes of 30 - 40 percent, so 20 percent annually of your land’s value isn’t that much, compared to the usual income taxes IMO.
Additionally, maybe the LVT would be paid based on the total value of all land you own? In this case, there could be an exemption for the first €100k of the value of your land or something, so that poor families don’t have to pay the LVT and that the tax starts at a rate that should be affordable for the people who can afford to buy land worth at least 100k. This can’t be circumvented by buying lots of smaller pieces of land, because the tax would be based on the total value of your all your property combined.
If we did a revenue-neutral shift from property to land value taxes, for instance, we’d still need income taxes, but we could still cool upward speculative pressure on land prices such as seen in the Australian Capital Territory (which has a pretty milquetoast LVT, nowhere near the full-LVT system I’m arguing for).
I’m sorry, but what do you mean with this?
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/me eyes glaze over
can’t we just do anarco capitalism? I mean, what has the state ever done for you? …
Dear God no
Under capitalism, all those taxes proposed will be passed on to the labor class via price increases.
Thankfully, that’s not quite how tax incidence works.
For land value taxes, both in theory and in practice, LVT cannot be passed on to tenants.
For Pigouvian taxes (e.g., carbon tax), yeah, that’s actually part of the point. It shouldn’t be so dang cheap to pollute the planet. If it’s artificially cheap to pollute and waste and destroy, neither you nor businesses have incentive to clean up your act except out of pure good will. And unfortunately good will alone cannot be counted on to protect the planet and the victims of negative externalities from a perverse profit incentive.
For severance taxes, well, the Norwegian model shows that subsidizing exploration and taxing exploitation increases competition, increases supply, and increases overall prosperity in society. The high (and risky!) costs of exploration act as a huge barrier to entry for smaller competitors, ultimately resulting in monopolistic competition, high rent-seeking, and half-assed exploitation. Why bother developing efficient exploitation techniques if you can coast on unearned monopolistic profits?
Why does the girl look bruised?
She is working hard and gets bruises from the exploitative capitalist work environment that mandates 40+ hour work weeks for pittance in return. And also has to repeatedly lift boxes up to 50 lbs per the job description and some of the box corners poke into her which hurt when lifting things.
