For a long time I’ve been a bit uncomfortable with the idea of income and/or sales taxes being the primary basis of government revenue, since it seems to be taxing the very activities we want to encourage. A greater emphasis on property (and most especially estate) taxes has seemed much less regressive and more likely to stimulate economic growth. More recently, I’ve also been intrigued by two other similar theories of taxation which seem more consistent with those same goals. My thoughts on both are more half-formed than usual, so I’ll probably ramble a bit, but rambling is that blogs are for.
The first theory is that of the Georgists () and geolibertarians (, ). Yes, I know there are differences between them, but there are more similarities. Their basic idea is that land is a special kind of property, which confers upon its owners a special kind of power, and that wealth and income disparities that exist even today can be traced back to morally unjustifiable royal grants of land going back at least to the feudal era; the very term “real estate” is etymologically derived from “real” = “royal”. The geolibertarians in particular seem heirs to a pretty rich philosophical tradition going back at least to Locke, whose labor theory of value recognized an important limitation which too many have subsequently ignored:
Though the earth and all inferior creatures be common to all men, yet every man has a “property” in his own “person.” This nobody has any right to but himself. The “labour” of his body and the “work” of his hands, we may say, are properly his. Whatsoever, then, he removes out of the state that Nature hath provided and left it in, he hath mixed his labour with it, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state Nature placed it in, it hath by this labour something annexed to it that excludes the common right of other men. For this “labour” being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others.
The problem, of course, is that there is not an infinite supply of land, and those who were left out of the royal land-grant process end up permanently screwed out of their just share of the wealth which derives from land ownership. Since nobody can live without some access to land, if all the land is already owned then any newcomers’ very survival is contingent on paying whatever rent the current owners choose to charge. This potential for extortion may be exercised to a greater or lesser degree, but is never absent and has played an important (some would say primary) role in creating most of the great historical fortunes. Even those who supposedly built their fortunes some other way are/were dependent and often beholden to previous owners of land-based wealth who invested in their enterprises. The Georgists and geolibertarians, recognizing this for a fact, say that the solution is to charge for the privilege of owning land. Furthermore, they claim, the revenue from such land rents or land value taxes would be sufficient to remove the need for other forms of taxation. Thus, taxes on income earned via labor can be replaced with much more justifiable tax on possession of a static asset to which the right of ownership (especially free and in perpetuity) is morally questionable. Obviously I disagree with the geolibertarians about how much revenue that should be, being more of a “geoliberal” myself, but their pages which I cite do an excellent job of explaining both the moral and practical justification for such a tax.
Don’t stop reading yet; there’s more.
The other similar principle of taxation that I’ve been thinking out is best summed up as “tax bads, not goods”. “Goods” in this case is used not so much in the sense of “goods for sale” (precluding both property and sales taxes) but of “things that are good” (such as production). The “bads” are things that are harmful, in particular depletion or degradation of non-renewable resources. Thus, extraction of resources – ore, trees, water, oil – from the land should be taxed, as should profligate use of those things and their derivatives (e.g. energy). This theory has been around for a while, mostly (for obvious reasons) coming from ecologists, but a couple of things I’ve read recently have brought it back to my attention. One is Jared Diamond’s Collapse, which describes in excruciating detail how mismanagement of finite resources has often led to the complete collapse of societies and civilizations. The other is this month’s Scientific American, which is about the (mostly ecological/demographic) challenges of the next fifty years or so. One particularly cogent point in the latter has to do with the essential differences between finite (especially natural) resources and renewable (especially human) resources, using the example of fisheries. Up to a certain point, one can increase the economic output of a fishing ground by deploying more man-made capital in the form of boats and their equipment. When the fishing ground’s has been overfished (or degraded by unsustainable practices), that doesn’t work. Only allowing the resource to replenish itself, and subsequently limit resource extraction to a sustainable limit, will suffice because we currently do not have the technology to contribute much to its replenishment. The same point about the non-equivalence of man-made vs. natural capital is also made briefly here, further underscoring that it’s not a new observation even though many otherwise-intelligent people still rely on the fallacy. The lesson that Diamond and the others draw from this is that forestalling a resource-triggered collapse requires some sort of control over the depletion and degradation of natural resources. That control can be authoritarian, market-based, or (most often) some sort of hybrid, but economies and societies that don’t have any kind of control are in an unsustainable state.
If the control over use of natural resources is market-based, via taxes or fees for extraction/use/degradation, what you end up with is something very similar to the Georgist and geolibertarian proposals. The same industries and activities – e.g. mining, forestry, agriculture, fishing – that would be most affected by a pure land tax would also be most affected by an eco-tax. There are also differences, of course, mostly favoring the eco-tax in my opinion. For example, the pure land tax would not account for pollution and degradation, which would have to be handled by other means. On the other hand, the eco-tax would not tax (or would more lightly tax) “idle” land such as a conservation group might set aside as a nature preserves. Since such preserves are necessary to replenish forests and soil, absorb CO2, or preserve biodiversity, I think that’s a good thing which allows such needs to be met with the land in private hands instead of the government’s. There is definitely some question of whether a pure eco-tax could generate enough revenue to replace other forms of taxation, though.
That’s basically it. I haven’t explored all of the issues enough to reach any sort of conclusion, or even to feel like I really understand the ins and outs. I do know that Georgist ideas have gained some “traction” particularly in Australia, where some jurisdictions have even implemented Georgist policies with some success. Here in the US, the geolibertarians represent a small but significant group within the libertarian party, whereas eco-tax proponents are few and uncoordinated and likely to be dismissed by many as granola-munching tree-huggers. If the two (or three) groups could join forces though, proposing a single coherent alternative to the current tax system, they might actually be able to make a dent in the confused and often dysfunctional mess that is our current tax system. I can dream, can’t I?