All taxes come out of rents

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Mason Gaffney has for years been describing the nature of economic rents and its relation to taxation. His key idea, which would have been uncontroversial prior to the rise of the neoclassical school, is that all taxes come out of rents (ATCOR). This means that a single tax on the rents earned from ownership of natural resources can always provide sufficient taxation revenue.

Let me explain.

To do this I first need to be clear about why rents are not a feature of current mainstream economic reasoning.

You may not realise it, but in the neoclassical market model capital inputs are all leased by firms, and compensated are their marginal contribution to production. This leads to a very circular analysis and an inability to properly understand the concept of rents.

For example, when we whittle our way through the production chain down to the landowner, who has one input, land, the neoclassical framing say that this owner rents their land inputs, which are compensated at their marginal contribution to production. Okay. So she rents off another person who owns the land, who we then model as renting from another person, and so on.

The buck never stops.

That’s what happens when you conflate land and capital into a single input. They nee to be treated differently because land is not an output of any production process, unlike capital.

When you allow the buck to stop at ownership of land and natural resources, you get a very different picture of the economy. One in which the taxation capacity of rents is not limited their current value. As Gaffney points out, when we “lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes”.

Henry George made this argument concisely a mere 130 years ago when writing in 1881 about the fund from which taxation is drawn

It may seem like a truism to assert that the only fund upon which taxation can draw is that made up by the produce of the community, and that to multiply the places at which it is tapped is not to increase its capacity to yield.

To be more clear I will use a very simple and abstract example to show how reducing taxes on wages increases the taxation capacity of land.

Imagine two households – household A owns all the land, and household B rents the land on which their home sits from household A. It’s a big abstraction, but I need to make this point clearly.

The renting household earns $70,000pa in wages, and pays 10% of that in taxes.  The government raises $7,000 via taxes on incomes each year, meaning the net income of that household is $63,000.

Household B bids up to 15% of their take-home income on their preferred housing location, meaning they pay $9,450 in annual on rent for the land on which they reside. They pay all the costs of building and maintaining the structures on the land.

Household A, which owns all the land, does not work and receives as their income the $9,450 in rent paid by household B. If the market interest rate is 5%, that means the value of the land on which household B resides is $189,000.

The total surplus in the economy is the wages plus taxes plus rents, or $70,000 in this case. Remember, we don’t want to double count the $9,450 as wages, because in real terms, they are merely what is left over after paying taxes and rents. I summarise this setup as Scenario 1 in the table below.

Now consider what happens when the total tax burden is shifted to land.

This means that household B has more money to spend on rent because tax is not taken from their wages. If they continue to bid up to 15% of their income on housing location the rent is now $10,500 (shown as Scenario 2 in Table 1). The annual rent received by the land owner is 11% higher because taxes have been removed from wages, which increased the taxation capacity of their land.

To maintain a constant $7,000 tax revenue a land tax rate of 10% is required [1].

A third scenario drives home the idea that all taxes come from rents. In this case taxes are removed from wages and added to rents, but household B bids up the rent to a point where their real wage is identical. They now pay $16,450 in rent, which is the sum of the rent and taxes they paid in Scenario 1.

The land owner then pays the taxes and is left with an identical income. Thus, we can see that it is technically possible to switch all tax revenues to land without affecting the incomes of different actors in the economy.

The following table summarises this example economy under each taxation scenario.  In reality, shifting to land taxes would involve something between Scenarios 2 and 3.

Screen Shot 2014-02-27 at 11.31.27 am

We also need to think carefully about this result in terms of debates about housing affordability and land taxes as a possible solution.  While Scenario B has a much lower land value, both of these scenarios have land occupation costs of 15% of take-home wages.

What makes housing Scenario 2 more affordable is that the 85% of wages left over after land costs can buy more goods than in Scenario 1. 11% more in fact.

This exercise has demonstrated that indeed whatever current taxes are being raised can be raised through a single tax on land and natural resources. It provides a brief and very simplified look at the mechanisms whereby reducing taxes on labour increase the taxable capacity of land, and the distributional impacts of doing so.

Please share this article. Tips, suggestions, comments and requests to rumplestatskin@gmail.com + follow me on Twitter @rumplestatskin

fn[1]. Which we ascertain from solving the two equations:

value =(rent-tax_amount)/i

tax =value*tax_rate

40 Responses to “ “All taxes come out of rents”

  1. sydboy007 says:

    Quite interesting. I just like the sheer simplicity of a broadly based land tax with a broadly based consumption tax. Bring those in and corporate tax could be lowered along with income tax and a pretty decent sized jump in the tax free threshold. Throw in taxation on interest only on the real interest rate earned and we might turn the economy away from the houses and holes it’s dug itself into.

  2. tonydd says:

    Taxation is about being re-elected, it is not about economics. That is why its a hard sell though its simple and logical.

    The above is the problem to be addressed, the symptoms are myriad housing, population and crony capitalism are all results of the re-election objective.

    Treat the disease not the symptoms

    • It is surely so, tonydd. If we moved from taxing wages and business profits to land and resources, the ~5% of GDP destroyed in deadweight losses would promptly reemerge.

      This is only a subset of the benefits, yet a very tangible, measurable and instant activity source (see: KPMG Econtech).

      Australians love a Magic Pudding – well here it is and we could begin dining tomorrow.

      ps. Mason Gaffney is a legend.

  3. Peter Fraser says:

    A good plan but a hard sell Rumple.

  4. PhilBest says:

    Rumples, I really agree that there is far too little understanding of economic rent and far too little discussion of it these days.

    But there is something you are leaving out of it, and we really need a better terminology to distinguish between two essentially different types of economic “rent”.

    Economic rent once upon a time, was determined by the absence of abundance of “supply” of land for the production of necessities, due to the absence of cost-effective transport systems. Equilibrium always occurred at the point where the average member of society was paying absolutely as much as they could stand, for the necessities of life, and some proportion at the bottom would be starving or homeless.

    As incomes rose, so did economic rent.

    What is missing from this, is “consumer surplus”. There was a time when there was none. Now that transport systems enable pretty much the entire world’s land supply to be part of the network of production to satisfy everyone’s wants, economic rent in its original form has been pretty much abolished. The correct term is probably the one used by Karl Marx and others, “monopoly rent”; that is, the owners of land at that time had a “monopoly” on the supply of the wants and necessities of the population in their vicinity.

    But in the modern era, we still use the term “economic land rent”, to refer to the “gain” to land owners from RELATIVE location advantages and from systemic increases in production and income. As a city grows, someone’s land increases in value. But this is nothing in comparison to “monopoly” economic rent.

    In non-urban land, the differentials in rent from location advantage are minimal, so efficient is the transport system. Farmland 50km from a city is barely any different in value to that 400km from the city.

    “Option values” mean that the existence of superabundant supply of land “somewhere”, able to be brought into competition to the existing utilised land, eliminates the “monopoly” aspect of economic rent. Alan W. Evans suggests “differential rent” would be a better term now. It is merely a “differential” between one site and another, based on location advantage; NOT SYSTEMIC SCARCITY.

    IF the world ever did run out of land for the production of sufficient food and textiles for its population, “monopoly” economic rent might return. So too, if transport systems ever had to cease to exist in their current cost-effective form.

    HOWEVER, “monopoly rent” in URBAN land has been re-introduced in many cities (where it had once been eliminated) by regulatory rationing of land FOR urban use. The same could be done in, say, wheat growing land if it too was rationed by regulations.

    The overall effects of MONOPOLY rent with or without land taxation, will be different to the overall effects of DIFFERENTIAL rent with or without land taxation. Land taxation is not a “solution” for MONOPOLY rent; monopoly rent will remain harmful and society would be better off without it than they would be “with it and taxing it”. Only “absence of rationing” is the solution.

    I respect the work of the land tax advocates, and agree with land taxes on principle; but I am not yet aware of one single expert among them who has tackled this essential difference between “kinds of rent”.

    • melbourneguy says:

      PB you’re focusing on productive land but rumple’s scenario was a household/residential.

      There absolutely is scarcity value for land say…. within a few kilometres of the CBD where most people need to work right?

    • Pfh007 says:

      That is a good point Phil.

      Best to limit the artificial re-creation of monopoly rents in the first place by limiting as much as possible the restrictions placed on land to what is essential in terms of public health and amenity.

      There will always need to be some land use restrictions but they should be only the bare minimum.

      Which is pretty much what we had until the rise of the over engineered and prescriptive town planning regimes of the post 1960s. Which inevitably drifted into a playground for the rent seeker, paternalists and ideologues.

      Fix the system of land use restrictions and gradually introduce a land tax system may the be optimal strategy.

    • Sweeper says:

      Interesting points Phil.

      I think that David Ricardo had the best handle on economic rent.
      He defined it as the difference in yield between two natural resources which employed the same quantity of labor and capital.

      A increase in demand for commodities produced with finite natural resources would increase rents as lower yielding natural resources were brought into production.

      The return on capital (profit) was unrelated to economic rent.

      So BHP’s “profits” for example actually represent increased rents. Being the difference between the higher yields available at BHP mines versus the lower yielding mines brought into production due to the increase in iron ore prices. So a “super profits tax” on Australian producers is in fact a tax on rent.

      In the Ricardian world, it also makes perfect sense that labors share of national income could decline as capital investment also declines. Because the rate of profit is unrelated to growth in non-labor income.

      These are all intuitions which have been lost.

  5. Pfh007 says:

    Nice clear explanation!

    PF- Transitioning to greater reliance on land taxes will present challenges but keep in mind that they already exist in various forms on some types of land.

    The main objections that are raised and with some force is that people who have arranged their affairs with regard to the status quo will be negatively affected especially those in retirement.

    When the torrens system of land title was introduced it was limited to new land and land that people voluntarily applied to have converted from old system title – there are still some pockets of old system title out there.

    A similar approach can be taken with land taxes. Introduce them on newly developed land. That way they first buyer is fully aware of the taxation regime that applies when they buy. Whether developers who bought raw land given the status quo require some ‘assistance’ may be an issue.

    As for existing land, a gradual and initially voluntary approach may be best. A buyer can elect to bring the land within the land tax system as an alternate to paying stamp duty. Adjusting the land tax rates and stamp duty rates to make the election attractive would be a good idea.

    It would take decades for the majority of land to be converted (all new developments will be part of the system) but gradually and most importantly voluntary schemes are more likely to be accepted.

    This is the general approach being taken in Canberra. Just a shame that their LDA is determined to continue to gouge new land releases for every dollar they can.

    • Not sure of the point you seek to make on title, Pfh. Australia has a federal land registry (Cadastra Light) – all land ownership is registered and therefore can be traced.

      On introducing a land tax, the task is simpler than most realize. We already have State Land Tax instruments, though with widespread exemptions such as principal place of residence and englobo. Simply remove the exemptions and simultaneously remove Stamp Duty or Payroll Tax.

      Prof. Gavin Wood et al model the consequences for Melbourne of exchanging SD for SLT here: http://www.ahuri.edu.au/downloads/publications/EvRevReports/AHURI_Final_Report_No182_The_spatial_and_distributional_impacts_of_the_Henry_Review_recommendations_on_stamp_duty_and_land_tax.pdf

      Landowners in five municipalities – Melbourne, Yarra, Port Philip, Borroondara, Stonnington and Bayside – pay more, everyone else pays less and the economy fires up.

      • Pfh007 says:

        i am talking about the system of land title not whether there is a record of land ownership.

        Torrens has lots of advantages over old system but care was taken to introduce it gradually. When making changes that affect peoples castles much care must be taken.

        My point is that introducing land tax on the principal place of residence is a major political issue because it does have real consequences for lots of people who vote. It would be nice if it wasnt but it is.

        A gradual introduction on a voluntary basis – compulsory for new development will side step a major impediment.

        Ignoring that simply means we are likely to be talking about reform rather than doing it.

        The politically possible is always more appealing to our pollies.

        If there are some examples of political systems like ours that have shifted in one step to a uniform system of land tax I would be keen to read up on them.

      • Peter Fraser says:

        If only it was that simple David, but it’s not.

      • This forum will read your dismissal as evidence of the value and integrity of these ideas.

      • Peter Fraser says:

        sigh.

      • meltfund says:

        David

        You are dreaming like a Georgist. A tax on economic rents IS THE MOST DIFFICULT tax to adopt of all. This is proven, repeatedly, in fact. Because the 99% do not want it. Is there a more powerful force than the 99%? It would be quite a surprise to see the 1 overwhelm the 99? This has been the case for the entire history of civilisation.

        But that is not a political, economic or technical problem. It goes much deeper than that. Into what is hidden deep in the psyche of Individuals and how we herd as a collective. No one is dealing with the problem from its source – the mind.

        So unless people change individually from the bottom up, one by one, nothing important will happen and we will carry on expecting time to be our saviour. In the hope we can “educate people better” or convince the powerful to do something. Er heloooooo!

        No education is required for even the simplest of minds to understand, that a long shot gamble on a free lunch is far more attractive than a nice smooth future for our children. Even when we know our own children may bear the brunt. This is how the 99% are, rich and poor.

        And all politicians, wealthy bankers and speculators thank you for giving them all the data they need on how to undermine the education system quietly. I mean look at this blog for starters. Its a basket case of ignorance because its been educated by the system paid for and upheld by powerful.

        But even if that were not enough evidence for you, look to history – every time government has ignored the 99% and forced a land value tax or similar onto the people against their will, there has been chaos and world war. Remember Churchill, why do you think he abandoned it after 1912 and never mentioned it again after making it the centrepiece of the 1909 People’s Budget with him as Chancellor. He saw what we are saying clearly. He was a smart guy, not much of an intellect, but wise.

        All other attempts to collect government revenue directly from the benefit recipients as would be most sustainable, it has been laced with exemptions making it useless because the wealthiest and powerful’s biggest assets are the best value land in large quantity. I mean look at banks today who own 50% of the world through mortgage credit. Mortgage ‘Interest’ is a hilarious euphemism. Its de facto economic rent. There was no capital involved in the credit creation for it to be interest. Education has only helped people, even the best professor, to believe that rent is interest. Very very funny that no one can see this. But a child before going to school can.

        All of this is why MeltFund is such a success story. We have the best protection and guarantee of all – The 99%. MeltFund is the only financial no lose scenario. We win both ways. If people remain as they are which is extremely likely we will be more and more minted materially. If we grow too big for the state to allow, there is only one way to stop us – to abolish all taxation except for that on the value of land. Mortgage repossession is where the largest transfers of wealth are made by a very long way. And to tax away the rents would collapse The Fund overnight.

        So will the first politician ready to propose this please stand up and be counted! How long will it be before the 99% elect him again? 25 years, the average lifetime of a mortgage that does not default.

        And if that staggeringly dangerous policy by some genuine miracle is actually undertaken, who knows how high we will climb in things more important than material wealth.

        You see. We cannot lose, because we look at reality and affirm what we see, like a child. It really is a wonder how men of high intellect cannot see the simple.

      • Schadenfreude says:

        like a child. It really is a wonder how men of high intellect cannot see the simple.

        Which begs the question, why do you continue to post your delusional drivel.

        If the market really was all systems go and full steam ahead I wouldn’t expect to see the resident spruikers in here as often as you all are…

        I love the smell of fear in the morning…. :-D

    • Peter Fraser says:

      PFH – you know about old title? – I’m impressed.

      I think that the introduction problems are enormous and the biggest hurdle is the political one.

      Even if that hurdle can be negotiated (which I doubt) then the transition from the current income base for States and Local Governments would cause a genuine cash flow issue until it settled down assuming that some exemptions for recent buyers would need to be granted, so Federal Government blessing, financial support and involvement is absolutely crucial if it was to be done nationwide.

      This would represent tearing up the current rule book and rewriting it – and it still would not address the issue of 10% GST on all housing that wasn’t there prior to July 2000.

      Maybe just maybe if we had one progressive state government who would invest in education/training and implement these changes whilst attracting manufacturing and commerce with rewards and the trained workforce. Maybe that would work as the lower priced housing also started to attract a greater share of the population. That might force other states into following suit. I don’t see any progressive state governments willing and able to fund such a radical change but who knows, the Berlin Wall fell didn’t it.

      The BJP government in Qld ceased death duties many years ago, and the resultant migration of cashed up retirees from the other states to Qld eventually forced the other states to follow suit, so there is that precedent.

      • disco stu says:

        Great argument for land taxes from an intellectual point of view, but I’m inclined to agree with Peter that baring some existential financial crisis inflicted on Australia, it is doubtful that such a tax could be rolled out – perhaps it may be possible to incrementally roll some form of land tax as the ACT is attempting to do, but really – rolling it out over 20 years? Frankly to be fair from an intergenerational point of view it should be rolled out immediately, with the only exception being people who have bought a property (and consequently paid stamp duty) within the past 10 years.

      • Peter Fraser says:

        stu I want to make it clear that I think that a land tax would work and reduce the cost of housing. I’m not against it although any resultant large reduction in house values would cause major problems that would need to be worked through.

        But it’s the political hurdles that I think are the highest ones to negotiate.

      • flyingfox says:

        @PF

        although any resultant large reduction in house values would cause major problems that would need to be worked through

        And what would these be?

      • Rumplestatskin says:

        Yes, I also agree with Peter that the political hurdles are holding back any reform to land taxes. That was the whole point of my recent post http://www.macrobusiness.com.au/2014/02/pretending-to-care-about-housing-affordability/

      • Pfh007 says:

        Old system title? Not that surprising if you spent some time many moons ago in bank settlement rooms with a mobile phone the size of a house brick. Though the old system transactions generally took place in lawyers offices so we could check the paper trail of titles.

        Many US states still use old system or common law systems of title. Their lawyers were far too smart to let something like a registration system of title like Torrens be introduced.

        Make the world too simple and you will end up with a lot of unhappy lawyers.

      • Peter Fraser says:

        Ah that explains it PFH – I did some time in documentation and settlements in CBA Lending Dept. A Friday before a long weekend in a busy RE market sorts out the players especially of some lifts aren’t working. I was thinner then by necessity.

        Yes I know that the US is still on an 18th Century System. It seems wierd that a country so advanced still trades real estate in the same way that horses are traded. Actually most of the countries are like that – amazingly antiquated. Sam Torrens may have been a drunk, but he was a smart drunk. I think that he favoured Verhdello.

    • meltfund says:

      PFH have you heard of the Location Value Covenant?

      http://www.systemicfiscalreform.org/Home/location-value-covenants

      • Pfh007 says:

        Yes – i saw that after watching a couple of your youtube videos but I did not read it in detail. Thanks for posting the link. Sounds very interesting. How is the advice from Counsel coming along.?

      • meltfund says:

        We tend to be giving Counsel lately. :)

        The QC tells us “Its a grey area”. I like that because it means all that is required is to pay off a lawyer, court the judge and buy the lobby.

        The LVC is better than LVT because like you wisely point out… it is voluntary and requires no state force or compulsion. So thats the political, economic and educational straw men sorted out despite them not being a genuine problem.

        Once that is out of the way the mind of people will be revealed for what it is – Rent Seeking. Even with a voluntary scheme people will rather take the gamble on our children anyway!

        Then we are left with The Fund and its derivatives.

        Let me have your feedback on the Location Value Covenants. We marketed them to Georgists and they refused to discuss it more than anyone – it threatens that religion.

      • Pfh007 says:

        Mr Meltfund,

        After a further read I can see the attraction of the LVC concept in its various manifestations.

        Particularly, in relation to the challenges posed by transition.

        An antipodean application of the concept may have some merit.

        Any more links on further discussion or articulation of the LVC concept would be appreciated.

        Pfh007

      • meltfund says:

        pfh

        Dr Adrian Wrigley, our PHD, rediscovered the Location Value Covenant. This is a pretty good exposition starting Page 6:

        https://drive.google.com/file/d/0B5SHdsI4Ysi_cWN6dXpRZS0wT1k/edit?usp=sharing

        For more google “Adrian Wrigley Location Value Covenant”.

        LVC’s are very similar to a mortgage contract – voluntary – you provide the land, I’ll pay you rent. The key difference being that the economic rent is now collected by government instead of banks. Read the doc for several more important differences.

        True, governments are hugely wasteful. But at least you get something in exchange. And banks are incredibly feckless and timid.

        Its essential to remember the LVC is a theoretical experiment in the first instance – to test The People who have the ultimate obligation. They may well choose to stick with the mortgage lottery and all the effects of that. So be it!

      • Pfh007 says:

        Thankyou!

  6. myne says:

    Clearly the banks have this figured out.

  7. Dibit says:

    “His key idea, which would have been uncontroversial prior to the rise of the neoclassical school, is that all taxes come out of rents (ATCOR). This means that a single tax on the rents earned from ownership of natural resources can always provide sufficient taxation revenue.”

    Sorry, but I find the above idea rather stupid.

    We could arbitrarily choose any point in the circular flow of money through our economy and say, “the buck must stop here”.

    We could say, “all taxes come out of workers”, “all taxes come out of firms”, “all taxes come out of GST”.

    Yes, you can argue that a single tax on the ownership of natural resources can always provide sufficient taxation, but you can also argue that company tax or income tax or GST can always provide sufficient taxation. The point is you just have to tax anything that is CRITICAL to the economy.

    It is silly to say it’s the worker that is the ultimate source of taxation revenue and then tax a worker because he is a worker, irrespective of whether he is actually working or not.

    • Rumplestatskin says:

      “We could arbitrarily choose any point in the circular flow of money through our economy and say, “the buck must stop here””

      Sure. That’s perfectly correct. The point is to link this with the physical reality that land ownership provides a right to the owner without any obligation to contribute to productive output.

      The second point is that, unlike many other points in the flow of money where taxes are issued, land taxes do not provide incentives to change behaviour in order to avoid the tax.

      “It is silly to say it’s the worker that is the ultimate source of taxation revenue and then tax a worker because he is a worker, irrespective of whether he is actually working or not.”

      Not really. That’s called a head tax and is known to be very economically efficient, even if it socially is not. For example, you cannot dispose of yourself to avoid paying the tax. Whereas with land you can sell it to someone willing to make use of the land and pay the tax.

      Also, taxes on wages are simply head taxes as a proportion of labour value. Each worker has a value that is reflected in their wage, and government takes a fixed proportion (or usually a scale of rates) of that in revenue.

      The main arguments to prefer land is that 1) land owners do not actually have to do anything except be lucky enough to own it to earn the money, whereas labourers must exert their efforts to production in order to have a wage value, 2) there are no incentive effects on land, and 3) administration of land ownership and management of the tax is simply, whereas higher taxes on wages can lead to much more cash-in-hand work.

      There are probably more reasons.

      • Dibit says:

        “The point is to link this with the physical reality that land ownership provides a right to the owner without any obligation to contribute to productive output.”

        For clarity I would ask you to expand on the above statement.

        Do you believe that it is good/bad/neutral that a landowner does not have to contribute to productive output?

        “The second point is that, unlike many other points in the flow of money where taxes are issued, land taxes do not provide incentives to change behaviour in order to avoid the tax.”

        I disagree, let’s assume a full switch to land tax only right now so there is no income/company tax.

        Do you believe all the corporates are going to leave their headquarters in the city, or move outward next week to drop their tax bill to near zero?

        “Not really. That’s called a head tax and is known to be very economically efficient, even if it socially is not. For example, you cannot dispose of yourself to avoid paying the tax. Whereas with land you can sell it to someone willing to make use of the land and pay the tax.”

        Incorrect. I can sell my home to avoid land tax, but then I have to move into a rental, where the landowner is passing all the land tax to me via rent.

      • Rumplestatskin says:

        The point about linking the cycle of money, and the physical nature of production is that there is ‘beginning’ point, a starting point, to production. In the beginning, there was land. All the benefits from land to production are provided regardless of the ownership of it. So while money cycles through the hands of land owners, they need not contribute anything to society in order to earn the rent. The moral foundation of the argument to tax land is that the land was a gift of nature, and the income to those staking and ownership claim is a gift from the productive efforts of others.

        “Incorrect. I can sell my home to avoid land tax, but then I have to move into a rental, where the landowner is passing all the land tax to me via rent.”

        Aha! So what you are saying is that it doesn’t actually matter who pays the tax, we all as a society all pay. This is of course perfectly true, and offers another reason for advocating a single tax on land. You must also agree then that the unemployed living on welfare also contributes to the tax revenues of society. Once you acknowledge this point a whole lot of nonsense in economic and political debate breaks down.

        “I disagree, let’s assume a full switch to land tax only right now so there is no income/company tax. Do you believe all the corporates are going to leave their headquarters in the city, or move outward next week to drop their tax bill to near zero?”

        Not sure what you are getting at here. I don’t think that will happen. I mean, they would have done it anyway to avoid rents, so I don’t see why they would move now when my whole point is that the tax comes from the same rent they are already paying.

        Further, if everyone moves out of the city the land values in the city will fall, and the land values at the new locations will rise.

  8. flawse says:

    We are assuming not only a closed system but a perfectly efficient system with nobody able to garner more than their worth through monopoly practice. In practice I’d suggest the tax would cause an almighty drop in the value of the productive resources, in our case to zero, while the lawyers and bankers fees would stay where they are.

    Nevertheless for the world as a whole the theory looks sound which leads to a corollary that, in toto, where government money is spent that has not been taxed, then it ends up as a use/over-use of our world’s finite resources…please think about it. Follow the money round and round, down and down, where does it end up?

    • Jumping jack flash says:

      “Follow the money round and round, down and down, where does it end up?”

      The manufacturers?

      Surely not the extractors of the finite resources who would be taxed under this model.

      A finished good is worth more than the sum of its parts, including the raw materials that went into it, right?

      That said I haven’t much of an opinion except that I think we shouldn’t tax into oblivion areas of the economy we want to grow. If mining and resources are flourishing then by all means tax them. If housing and rent is going gangbusters, then tax it. Don’t forget about the banks either.

  9. Lori says:

    Are you assuming like Physiocrats that all wealth comes from the land?

    Taxing only land will cause further huge inequality and lack of any means for regulating the market forces and wealth distribution. Not that now they are properly regulated, but the taxation is the most appropriate way to discourage an activity or to encourage it. Other rules have also financial impact, but they are hidden and not transparent, so they can easily end up in creating crony capitalism as it is today.

  10. Bryan Kavanagh says:

    Lori, name a form of wealth creation that doesn’t come from ‘land’ in its economics sense – natural resources, land sea, airwaves. A tax switch to natural resources which are not produced, just there, and which can’t flee to tax havens is looking an increasingly good option for a sound revenue base.

    I take others’ point that it’s not likely to happen, so business ought to be prepared to reap the whirlwind.
    http://www.onlineopinion.com.a/view.asp?article=16067

    • meltfund says:

      Brian

      But people do not care about who by natural right owns what. We all just want a free lunch.

      Why are you struggling so much with this. It is observed, in fact, repeatedly.

      Its a wonder. And if you want to make ‘Progress’ you would do well to start treating it like a wonder, rather than a science.

      People are not robots. We are human beings. Treat us like robots and you will not get the response you want to hear.