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REAL Tax Reform
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One of the most important things that the United States can do for all its citizens is to reform its tax policies. This is something that is up to us -- we don't need permission from foreign countries, we don't need a particular day of the year, or a particular type of weather. Meaningful tax reform is an option right now, and we are wasting the opportunity. The Progress Report welcomes this article and author James Leroy Wilson, who is making his Progress Report debut. |
by James Leroy Wilson
A few days after his re-election in November, President Bush gave a press conference in which he talked of spending his "political capital" on Social Security reform and tax reform. Since then, talk of tax reform has died down and Social Security "privatization" is the talk of the day.In theory, this is disappointing, as tax reform is society's greatest need, and will remain so until we get it. On the other hand, what Washington insiders call tax "reform" is mere tweaking of the current tax laws. Simplify here, close loopholes there, cut rates everywhere. And I certainly don't object to any revisions which make the present system easier for businesses and removes greater numbers off the tax rolls. But at the end of the day, all we'd get is something not quite as bad as before. Real tax reform will remain society's greatest need.
The "anti-government" streak in the American character is essentially "anti-tax." The libertarian in us who just wants to be left alone, first and foremost wants to be left alone from the taxman. The amount we are taxed and the ways we are taxed reflect the degree of control the government wants over our lives. It is not "selfish" or "greedy" to not want minimal government intrusion into our lives. It is not a sin to want to be free. Americans didn't revolt against the King because he was a King, but because of the taxes he levied.
The language of tax "fairness" is the language of doublespeak. Take "sin" taxes on alcohol and tobacco, for example. These taxes are higher than most sales taxes, ostensibly to discourage their purchase and thereby improve public health. But if the taxes get too high, customers will make their purchases in places where the taxes are lower or non-existent, including the black market. The State then loses the tax revenues. And the State doesn't want that. Instead, it wants to exploit, not discourage, the bad habits of smokers and heavy drinkers. Why does the State have higher taxes on alcohol and tobacco? Because it can.
Even in this scenario, where one can blame smokers and drinkers for their own foolishness, there are unseen costs in the tax. The addicted smoker may not be deterred by the high cigarette tax, but he finds, at the end of the year, that he had saved less than he had hoped. Taxes do discourage behavior, just not the behavior the State claims. And in the end, the State doesn't care; it just wants the revenue.
The false logic of "sin" taxes applies to other sales taxes, and to taxes in general. If the State is trying to discourage certain behaviors through taxation, then what behaviors is it not discouraging through taxation? A high income tax doesn't necessarily discourage people from working - but it does discourage them from saving and investing as much as they want. This means not as much business expansion or as many new jobs. Because we were taxed so heavily, our neighbor can't find a job.
Such is the vicious cycle of taxation. Even when the government spends the tax revenues on useful public services, this just increases land values, raising property taxes which in turn raises the rents on tenants. In the end, taxes make life more expensive for everyone, which always means that they hurt the poor the most.
It is enough to make some of us libertarians, who want to scrap all taxes, government regulations with all of their hidden costs, busy-body laws criminalizing consensual behavior of adults, the military-industrial complex, the prison-industrial complex, and on and on until we have a mere "night watchman" government. One, as H.L. Mencken described, that "barely escapes being no government at all." The poor would be liberated to the extent the State would be diminished. What was once consumed in taxes could now be spent expanding the economy, providing ever-increasing opportunities for the poor.
One small problem here. Very few people believe in this. Most do not trust a completely free market. They fear exploitation of low-class workers, from low-wages to non-existent safety precautions. They don't want sweatshops. They fear that an unregulated economy would create monopolies. They fear that the poor would be even worse off than they are now.
Is this due to defects of character in the wealthy? Is the businessman's alleged greed more dangerous than the politician's ambition? Such has been the argument between Left and Right for decades. Yet, all the dangers facing the poor in our hypothetical unregulated market come down to the last one: monopolies. But it isn't the creation of new monopolies in the free market that imperil the poor, but the monopolies already in place. If you get rid of the government, but do not get rid of monopoly, the poor will not be much better off than before. As Henry George wrote in Book 6, paragraph 16 of Progress and Poverty (1879):
Let me be clearly understood. I do not say that governmental economy is not desirable; but simply that reduction in the expenses of government can have no direct effect in extirpating poverty and increasing wages, so long as land is monopolized."So long as land is monopolized."
The problem of poverty, the problem of unemployment, is that the private ownership of land diminishes the demand for labor. If one can make huge profits just from buying and selling lands, where is the need to employ people? And by holding undeveloped land, he drives up the demand, and price, of all land. Developers overpay for just one small plot, and would have less money to build, expand, and hire more workers.
Today, we have both high taxes that discourage productive behavior, and also private land monopolies that drive prices up. The poor are hit twice. Both government and private land monopolies discourage development and employment. The demand for labor falls, which increases unemployment and depresses wages.
Which brings us to REAL tax reform. For the condition of the poor to improve, demand for labor must increase. We must get rid of government's tax policies that discourage productive behavior. But in addition, we must discourage the hoarding of land for speculation and instead encourage its development.
This means, to make land speculation costly by taxing the land's value and only the land's value. Only those who want to develop land for some useful purpose would want to own it. Land values everywhere would drop as speculators, who artificially keep prices high, go out of business. Developers would purchase land at reasonable prices, and will be in need of workers as construction and business expands. The market will be in need of workers, perhaps more than available, which will drive their wages up.
Taxes as most of us have experienced them have done plenty of harm to society. It is right and good to despise them and seek to get rid of them. But that is not the only cure for society's ills. Throughout history, land monopolies have done even more harm to societies, and to apply taxes not on productivity, but rather on land monopolies, is real tax reform. It affirms our liberties while it advances the cause of social justice.
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James Leroy Wilson runs the Independent Country blog.
Copyright 2005 by James Leroy Wilson. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to James Leroy Wilson and The Progress Report.
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Also see:
Simple Property Tax Reform Creating a Land Boom
Property Tax: Biases and Reforms
Reforming the Property Tax System
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