I originally wrote this up for the [ECONOMY] thread, but figured it probably deserves its own thread. It's a bit of a wall to dump into an existing thread.
So recently I’ve been doing some studying and it’s got me thinking about a couple of ideas. These are ideas are ones I’ve heard of before, but I guess now that I’m a bit more ideologically mature I’ve been in a position to think deeper about them and really consider the policy implications of them.
These ideas, on which I would like to hear others’ opinions, are:
1. Land tax.
2. Basic income.
They are not the same idea, but in my mind they are connected through them being ideas for social reforms that claim equality or justice as reason for implementing them, and they would both require a huge shake-up of the tax system.
Land Tax
Land tax is an idea I first came across in my public economics courses. It is a tax on the unimproved value of land (as distinct from a property tax, which is fairly common, and based on the value of land plus any improvements, structures, etc. placed upon it). Considering that land is immobile and exists in a fixed quantity, taxing it has some interesting economic effects. Basically, it doesn’t have (in the textbook sense, there are probably real-world implications I haven’t yet figured out) a deadweight cost like most other taxes. Although the valuation process for land is susceptible to rent-seeking, admittedly, it is difficult to hide land ownership (and hence avoid tax on it), and you cannot remove it from the country to avoid paying tax on it. A land tax would have effects on incentives, but they would largely be progressive or benign. For example, it may help to remove some kinds of ‘unproductive’ speculation from the property market (it makes less sense to buy land and allow it to sit idle while you wait for its capital value to increase).
Land tax is associated with an American named
Henry George, who popularised the idea. Philosophically, I like the idea of a land tax. I’ll speak normatively here: There is only so much land, and when we are born we are not allotted equal shares. Historically, land has been split up, colonised, and owned by virtue of a number of systems which have not been just. As global citizens, we should all be entitled to some proportion of the natural wealth of the earth (or if you wish to think more parochially, as citizens of any given state). Given that it is immensely impractical to redistribute plots of land of equal value, it would be better for the government to implement a land tax, and redistribute the value via its necessary services. Obviously land tax is a political poison pill due to the influence of large landholders.
Basic Income
Now basic income. This is an idea that suggests that the state should grant, to every citizen, an income that is unconditional on anything other than citizenship. This idea can be traced back to Thomas Paine (not being an American, this name is fairly new to me, but apparently this guy was pretty important in the creation of the U.S.A). Existing welfare states provide benefits to their citizens via a number of methods, but nearly all of them rely on conditions. For example, unemployment insurance (the dole) for those who want, but cannot find, paid employment.
Basic income is a huge idea, and would quite radically change the structure of our economy. The size of it can, of course, be debated for eternity. The idea is not, generally, to equalise everyone's income, but to give everyone a kind of 'real freedom'. The articles I've read tend to suggest and analyse basic incomes in the realm of some pre-defined poverty line. It’s pretty easy to find some negatives to hold against the basic income idea, the easiest being moral arguments against idleness and economic arguments about dis-incentivizing working/valuable production. I think a lot of these arguments are partially valid, but do not think they wholly discredit the value in implementing a basic income. The following are what I view as some of the major benefits:
1. It should allow more deregulation of workplaces and employment. For example, there would be no sense in mandating a minimum wage if everyone was already paid a basic income by the government. Australia has, for example, a lot of very stringent rules for wage/condition bargaining between employers and employees. Much of this could be removed under a basic income because…
2. Workers, that is, those who sell their labour for income rather than access to capital or land, would have more bargaining power in negotiations with employers. With basic income, those who currently have the least bargaining power in the workplace would be on better footing for negotiations. They would be less likely to face situations of “accept these crappy working conditions or die in a ditch”, which is really a false choice.
3. It would give monetary value to work that is not traditionally ascribed monetary value. For example, many people find volunteering rewarding, and it generally benefits communities, however, it must be the case that there are people who cannot volunteer because the requirement to earn wages takes up more of their time than they’d like. Likewise for raising children/housekeeping. I think this could potentially realign our economy, in that although you may see less ‘wealth’ being created, in reality it would just allow people to shift their consumption to things that they actually do value more, but just haven’t been recognised in monetary terms until after the reform.
4. Paying out an unconditional basic income greatly reduces the bureaucracy involved in complex means-testing systems, such as the intensely complicated web of welfare benefits we have here in Australia. Removing means-testing requirements could alleviate the poverty traps we get when people in lower income brackets face very steep real marginal tax rates.
5. Although I have no idea if this is a prevalent problem, removing many of the 1001 different programs for poverty reduction and replacing them with a basic income would reduce the information-gathering requirements that lower socio-economic groups face when figuring out which government programs and benefits they are eligible for.
I suggest we radically reform and restructure our economies by implementing a basic income (perhaps in the form of a negative income tax, which is similar), and altering our tax bases to rely more heavily on a land tax rather than on income and sales taxes. I don’t necessarily think that income and sales taxes should be entirely removed, but I think a land tax would work better. It seems like Milton Friedman (neo-liberal poster boy) agreed on this last point (according to the article I linked earlier, he called it the ‘least worst tax’).
Just on a personal note, can I point out that I have generally leant towards mainstream neo-liberal economic policies in the past. I have some libertarian leanings, but the social inequities that appear to be generated by some of those policies have always irked me. In my recent reading on these topics, these two ideas seem to be capable of reconciling (at least ideologically) my desire for equity and justice with neo-liberal economic efficiency.
Some numbers:
In Australia, the 'Newstart allowance' (unemployment benefits) is worth, at its maximum, about $12500 a year to a single person with no dependents.
(source)
John Humphreys, for the Centre for Independent Studies (an Australian libertarian think tank), floated the idea of a 30/30 tax reform that would implement a negative income tax. This is roughly equivalent to a basic income of $9000 a year.
(source)
Current effective marginal tax rates in Australia jump around all over the place. By some estimates, if you're on $20k a year your EMTR is 25%, but if you're on $25k a year it's 16.5%. From $30k through to $80k you might see it go from 20.5% to 35.5% and then back to 31.5%.
(source – I find much of the material coming out of Menzies House objectionable, but easy to digest info on EMTRs is difficult to find – point me to other sources if you've got'em)
Recommended reading-
Basic Income is a great, easy to read primer on the topic. I find the author gets a little bit hand-wavy with some of the criticisms, but I forgive him because of his brevity and readability.
Warning: pdf -
A Basic Income for All, Van Parijs.
I could write an awful lot more here, but I'll let others contribute to the discussion.
Tell me, what do you think about land tax? What do you think about basic income? Should the proponents of a basic income be denounced as crazy idealistic socialist hippies? Or would paying a basic income and land tax be a worthwhile price for a simpler taxation system and a more flexible labour market?
Posts
I will agree that it is a problem that some developers / owners can sit on unimproved land to the detriment of surrounding properties because there is no incentive to sell it unless they make a profit.
I would like to see a Land Tax as a baseline tax for owning property, then have Property Taxes factored in beyond that for improvements, such that you want to improve the land so that it will be earning revenue in excess of the taxes.
MWO: Adamski
If there is a blighted, unimproved or vacant property a local municipality wants to be put back on the market they can force the owner to sell it by a certain date or seize it.
Maybe I just do not understand how a Land Tax would generate so much money.
Second point I agree with totally though, I actually proposed ending poverty by just guaranteeing an income above the poverty line in another thread. It was half a joke based on a program I heard about that fights homelessness by giving homeless people apartments for free.
I understand the main argument against guaranteed basic income is that many people would not work under such a system and tank the economy. Also the "your stealing hard working citizens money in taxes to give it to people who are not working!" line.
With the efficient economies of an industrialized country though I can not imagine how there could not be enough left over to provide everyone with basic necessities of life (in money).
I was under the impression that the incidence of land tax fell more heavily on the owner, because the supply is very inelastic (the land is fixed). Regardless of where the incidence falls, though, would not the incentive structure a land tax gives rise to align better with efficiency than broad-based consumption or income taxes?
No, I'd prefer the government tried to implement a taxation system to improve efficiency and incentives within the economy than semi-arbitrarily seize plots of land by force.
I also think that 'ending poverty by just guaranteeing an income above the poverty line' may be a bit much to hope for, because the level of taxation for that to occur may be unrealistically high. On a related thought, this idea should not be strawmanned as 'the solution to the world's problems is just to make sure everyone has an above-average income!' You might prefer to think of it as a pretty radical substitute for the existing welfare system.
http://newnations.bandcamp.com
In regards to a guaranteed income, I would like to see studies that correlate how much of tuition costs have risen due to the availability of loans compared to the defunding of institutions to have an idea on the inflation that would occur as that much more money is placed into the market.
MWO: Adamski
Citation or explanation? It would seem to me that land taxes would be 100% borne by the land owner, the supply of land being next to perfectly inelastic.
It isnt the land itself that drives the demand, it is the improvements on it. The improvements on land are not inelastic, and thus the cost can be shifted onto the consumer.
MWO: Adamski
1&2) You really can't remove the safety regulations from a workplace, because the workers have the choice to leave. Because this Basic income will not be high enough to cover a lot of peoples actual CoL, since most people live above the poverty line. Thus the choice would still be "work here or sell your house and move your family into a slummy-apartment". Lot of people have lots of debt that they need to work to pay-off. Cars/mortgages etc, losing your job would still be overly disruptive to most peoples lives.
3) If you want to reward volunteers, It would seem much more effective to give grants to make them paid positions. Your area needs more English Second Language after-school help, create 5 positions for it, rather than pay 20 people BI and hope 1/4 of them volunteer there.
4-5)Part of the reason we have a myriad of programs structured as they are is because a lot of poor people are also really bad with money. Many of the same personality qualities that contribute to them having difficulty holding down a job(I'm talking about in more normal economic times, rather than the shit fest we have now), also make them bad at managing money.
If you are just giving out money there's nothing to force people to use that money responsibly. They can go blow it on what ever they want and then when the end of the month comes, they are gonna be broke with rent/bills due. That's why stuff like food-stamps , rent/heating assistance exist, it helps guarantee that people aren't starving or freezing to death. In a much more effective way then just giving someone a wad of cash.
I think most western societies these days, certainly the Scandinavian ones, consider this to be an unacceptable way of things.
1) Supply of land isn't perfectly inelastic, it may seem like that but such logic also requires that movie theater ticket sales are perfectly inelastic, yet we don't see movie theater tickets fall to zero the minute before a show.
Time matters in determining elasticity, over a definite time horizon supply will be perfectly inelastic, but that assumes there are no further periods. (no matter how we say this effects the reservation price/supply from land owners it certainly does)
2) what matters is relative elasticity. Renters are pretty close to perfectly inelastic (renting for living), so even an inelastic supply of land will be quite relatively elastic when we are talking about specific groups.
3) supply implies provided to the market, opportunity costs of suppliers imply that below some prices it is just not worth it (they could improve the land/use it themselves/etc) and it only takes understanding that different people exist with different values to get to a point where supply of land does not need to be inelastic at all even if the total quantity is fixed
4 but not really 4) there are a number of other assumptions and suppositions that we can make that change the situation in various ways and can explain elasticity in various circumstances, not sure if any of them are valid, but just wanted to put it out there that market imperfections for instance can cause elasticities to vary depending on the imperfection.
Basically, I think that a Citizen's Income is the best way to update our economy to take advantage of improvements in productivity. It used to be that we needed most of the population to work highly unpleasant jobs, just because that was the only way to survive. It's no longer necessary for society, but keep doing it anyway because of the imbalance in power between capital and labor, and it's stupid. We should give everyone a small wage to survive on so that they can do whatever jobs they choose to do.
If you provided housing, groceries & a small allowance (so, basically, it's your 'basic income' scheme, but the government takes care of putting parts of it into housing & food), I think it would see better results than what is seen with welfare programs in Nordic countries.
And if it were introduced, surely in the current environment this will just see land ownership slowly move to corporations that don't have to deal with human things like retirement, unemployment and so on. And you know what? Rent goes up. Its already insanely high in many urban areas.
Basic income: Lets say this is introduced in Australia. The wealth creation instantly devalues the dollar, and things we need to import become more expensive. So what do we do, print more money? Same problem. If everyone in the world followed this system, it might work, but as a small country can we really afford to? Greece is pretty much the model that we're looking at, where instead of being basic income, its massive tax avoidance.
Basic income also means that parents with more children get more income. Does this scheme encourage potentially better parents to have more children, or does it provide a means for bad parents to obtain more luxuries without producing output? If you introduce what is effectively a `time of plenty' across the board for the lower classes, doesn't this contribute to population growth? Is that helpful with limited resources?
And other people have made the point about how funds end up being spent. I would love to hear the results of a survey done on what people did with the `stimulus' money Kevin Rudd authorised a few years back. I reckon Harvey Norman & JB Hifi loved it.
Rigorous Scholarship
People think Milton supports Basic Income from his book Capitolism and Freedom, but in that book he only talks about his NIT.
It's workable. We just need to require that all IRS agents wear black top hats and mustaches.
Unless you have it evaluated as farming property, right, in which case you don't pay hardly any property tax. At least, that's how it is for New Jersey. And then you can make a 1031 like kind exchange for, say, other business property and totally defer the gain (provided you don't get any boot).
In the long run the incidence of the land tax falls wholly on the land owner, yes... it should be identical to the state owning all land and leasing it out. You can imagine that existing landowners are liable to be slightly aggrieved at the prospect of this change occurring, though.
but the improvements are untaxed, the land underneath it is
you have the incidence reversed here - land taxes fall wholly on the owner, whereas taxes on improvements may be passed onto the consumer (tenant/customers of shops/etc.). The owner will not reduce their tax burden by altering the improvements built on the land.
It isnt the land itself that drives the demand, it is the improvements on it. The improvements on land are not inelastic, and thus the cost can be shifted onto the consumer.[/quote]
but the improvements are untaxed, the land underneath it is
you have the incidence reversed here - land taxes fall wholly on the owner, whereas taxes on improvements may be passed onto the consumer (tenant/customers of shops/etc.). The owner will not reduce their tax burden by altering the improvements built on the land.[/quote]
There is also a problem with value. In some areas unimproved land is worth jack squat but throw some condos on it and it is worth millions where as other areas the land is worth more than the house on it. This type of thing would push poor urban families out of the city, maybe that is a good or bad thing. It could accomplish gentrification.
an LVT doesn't raise that much revenue
Edit: Also, the government really doesn't need more excuses to monetize parks, which wouldn't be taxable under this system.
As a matter of economic efficiency - if the LVT alters the way people use land, you're doing it wrong; the whole point of the LVT is to appropriate the rent of land in a way which has no long-run impact. Hence the claim to efficiency.
Any actual LVT has to be implemented in a way that permits people to mitigate the need to have a stable income and so its ability to stave off idle land is limited anyway. If you want to discourage unproductive uses of land, tax unproductive uses of land...
And this is why I like Milton Friedman a lot of the times.
The ghost of Milton roams the halls of Congress? ;-)
Also, on Milton Friedman, I didn't say that he supported a BI as such. Apparently, though, he once commented that a tax on unimproved land is the least objectionable form of taxation. He did support a negative income tax. This is, I know, different from a BI. They are pretty similar though - not exact substitutes, I'll give you that, but similar.
I'm sorry @ronya, but I've tried to rephrase this sentence a few ways and I still don't understand it.
I don't get that providing a BI would cause rampant inflation. I don't think any serious scholars have seriously suggested just printing out money and handing it out to everyone as a solution to the world's problems. Various levels of BI could be funded by restructuring the welfare and taxation system. It'd be a massive restructure, and there's bound to be unforeseen effects, but I don't see a necessary logical link between BI and inflation unless you're printing money to fund it.
Also, I'm not taken with the idea of 'instead of a BI, just give people jobs'. It seems silly to me. If you demand that the government create and force people into worthless (or semi-worthless) jobs just for the sake of then paying them a wage, where is the benefit? If you're going to be paying these people anyway, you may as well allow them their leisure/self-improvement/volunteering time. If we continue to improve productivity and technology, we can have the same current standard of living while working fewer hours. This can mean greater unemployment at the same level of overall wealth. Perhaps it's time to decouple the link between a person's means of supporting themselves and wage labour.
Also two further ideas to try to spur more discussion: many scholars who have suggested BI float the idea of paying minors a fraction of the BI rather than an adult's allotment. Is this a good idea or a bad idea? To me it seems intuitively sensible, after all, a child does not, nor should they have, the freedoms, liberties and responsibilities of a fully-grown adult. If the BI is to allow people greater freedom, a child should not need the same level of income (assuming of course that they are supported by their parents).
Lastly, there is a thing that is kind of a BI in existence in the world already: the Alaska Permanent Fund. Mineral royalties are paid into a fund, from which a dividend is paid to each Alaskan resident each year.
http://newnations.bandcamp.com
There are ways around this, like simply broadly exempting people who do not receive rent from their land and have no income/etc. Or laying claim to the land itself but postponing the seizure until death or an attempt to sell or rent the land.
Okay, that aside. The BI does not, indeed, cause inflation, but only because you're taking the funds from taxes. Regrettably, while it can easily substitute for some kinds of regulations (minimum wages!), its ability to substitute for other kinds of regulations are decently limited. At best you can use the BI as a way to impose user fees.