Naked Capitalism: It’s About Time
|November 13, 2013||Posted by Staff under Good Press|
This 2013 excerpt from Naked Capitalism, Jly 7, is by Yves Smith.
Michael Hudson has advocated taxing land much more heavily, since unlike taxing capital or labor, it does not burden the economy with higher costs . As he explains in a 2009 interview:
You want to phase out the “tollbooth” economy that adds unnecessary charges to the cost of living and doing business – charges that have no counterpart in actual necessary cost of production. You want to avoid monopoly rent of the sort that Mexicans have to pay Telmex. And you want to avoid having the tax collector lower property taxes, leaving more revenue available to be pledged to banks as interest on higher mortgage loans. To get a lower-cost world, you have to counter political pressure from real estate owners and their bankers to shift taxes off rent-yielding properties onto labor and capital. Income and sales taxes add to the price of doing business, and hence reduce their supply and competitiveness. Most economists – even Milton Friedman – recommend that the more efficient tax burden is one that collects economic rent – property rent, fees charged for using the airwaves, monopoly rent, and other income that is basically an access charge. If you tax land rent, for instance, this doesn’t raise the price of housing or office space. The rent-of-location is set by the market place. Taxes – or interest charges to buy such property – are paid out of the market price for using this space or natural resource.
Taxing economic rent doesn’t add to prices. It simply collects what nature or public infrastructure spending have provided freely – site value, the broadcasting spectrum, the rights to access the internet or other technology in cases where prices exceed the reasonable cost of production.
In 1930 about 75% of state and local finances came from the property tax. Last year it was down to 16%, so that’s from 3/4ths down to 1/6. Cities have shifted the property tax onto wages and salaries – income and sales taxes that increase the price of business. Taxes used to fall on property and hence were progressive, but now have turned regressive.
The Economist over the weekend published a great primer on the benefits of broad-based land taxes.
While I would not like to see a broad-based land values tax (LVT) implemented on top of Australia’s other taxes, there are strong arguments for improving the efficiency and equity of the tax system by replacing highly distorting taxes, like stamp duties, with an LVT in a revenue neutral manner.
LVT would help make infrastructure investments self-funding for governments, since any land value uplift brought about through increased infrastructure investment (e.g. new roads, trains, etc) would be partly captured by the government via increased LVT receipts. Accordingly, governments would be more likely to facilitate development, rather than act to restrict it in a bid to save on infrastructure costs. Second, an LVT would penalise land banking and vagrancy [sic], effectively increasing the supply of land in the process and bringing new homes to market more quickly.
Requiring any LVT liability to be paid in smaller regular installments (e.g. once a month), rather than in a large annual or biannual lump-sum, could also assist in gaining community acceptance, since it seem like less of a burden.
The arguments for LVTs are well known. It’s just a shame that Australian policy makers will not even consider reform.