share trade reciprocal barter


tax code occupancy tax rent control tax evasion

Government's War on Sharing

by Fred E. Foldvary, Senior Editor, 17 September 2012

There is a fuzzy border between trading and sharing. Suppose Adam gathers apples and Eve gathers oranges. The each want some of the other, so they can either trade some of the fruits, or they can share them. The result is the same: they each eat some of both.

Sharing implies that one gives the other some of the goods, and the other gives some to you, but reciprocal sharing is about the same as trading, perhaps though with a psychological difference.

Now comes the income tax to turn the beautiful act of sharing into a taxable commercial transaction. To the government, barter is just as much income as selling for cash. If you trade an apple for an orange, it has the same economic effect as selling the apple for cash, and then using the cash to buy the orange from your trading partner. The person trading his apple is subject to the same tax as the one selling for cash.

But since sharing has the same economic effect as trading, sharing too might fall under the tax code. This is what people are finding out when they share apartments.

In San Francisco, California, as in some other cities, there is a hotel tax, officially called the Transient Occupancy Tax. If you have guests stay in your apartment, you must pay a 14 percent occupancy tax to the city.

Many city residents have been using web-based services that find tenants for short-term stays. The guest benefits by paying less than he would for a hotel, and also by being able to stay in locations in which there are no hotels. The resident gets some income during the time he goes on vacation or stays elsewhere. There are also organizations that provide for car sharing, or short-term car use. Such services have been called a “sharing economy.” But the sharing is subject to income taxes, as well as special taxes such as the hotel tax.

Other problems arise from tenant’s rentals. In San Francisco, for example, it is illegal to sublet an apartment for more than is paid in rental to the landlord. The rationale is that when apartments are subject to rental controls, tenants can exploit their subsidized unit by subletting, in effect getting some of the economic rent. Also, some landlords could circumvent rent control with phony subletting.

The problem with subletting is the rent control itself. What is being controlled is not the economic rent, but who receives it. If the landlord is not allowed to collect it, then in effect the tenant is obtaining the rent implicitly, as a benefit. Properly, the people should be receiving the economic land rent in equal shares, and restrictions on development should be eliminated, to allow the quantity of housing units to match the quantity demanded.

The issue of taxing barter is inherent in income taxation. Barter is economically similar to using money as a medium of exchange. Sharing does provide net gains, and if gains are to be taxed, then if sharing is not taxed, that offers a way to avoid paying the income tax. The dentist will share dental services with members of a sharing economy, and they will share the food they produce with the dentist, and so there is no income tax, but indeed the income is there. Production is income.

The basic problem is the taxation of activities. A tax on the activity of production or consumption stifles the activity, which is the purpose of the economy and of living. To live is to consume. To tax consumption is to tax life, and to consume we must produce, so to tax production is also to tax the creation of life.

We can avoid taxing life if we tax the surplus from production that goes to land rent, because the landowner has not produced anything in return. If the landowner keeps the rent surplus, he gets a subsidy. The problem is not just the inequity of society’s surplus going to land title holders, but that the surplus creates a land value that rises with economic expansion. Speculators then jump in to capture the rising land value, and that carries real estate prices beyond what people who want to use it can afford, and then we get a recession like the Crash of 2008.

A tapping of land rent for public revenue is not based on any activity. The tapping does not depend on what the landowner does. He can hold vacant land and pay the same community rent as his neighbor who has a tall apartment building. A single tax on land value would avoid a special tax on occupancy. The abolition of taxes on income, other than land rent, would let people share as much as they wish, tax-free. And with no taxes on gains other than from land, there would be no tax evasion, and most folks would trade for money, since money evolved to facilitate trade. A lot of the “sharing” comes from the desire to escape taxes.

With a single tax on land value, sharing would be authentic. So the presence of the income tax pollutes genuine sharing. The replacement of hotel taxes with public revenue from land rent would promote a fuller use of real estate. Government’s “War on Sharing” destroys community spirit along with productive activity.

-- Fred Foldvary

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Copyright 2010 by Fred E. Foldvary. 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 Fred Foldvary and The Progress Report.

Also see:

Slugging -- The People's Transit & Antidote
http://www.progress.org/2011/slugging.htm

Ending U.S. oil breaks won't raise fuel cost
http://www.progress.org/2011/barrel.htm

Need versus Greed -- Inequality and the Right
http://www.progress.org/2011/soros.htm

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