How to End Taxes Immediately
Most tax reformers of the land-tapping persuasion advocate a gradual movement and shift towards a punitive-tax-free method of public finance
June 1, 2006
Fred Foldvary, Ph.D.
Economist

Most tax reformers of the land-tapping persuasion believe that how soever beneficial would be the termination of punitive taxes on human affairs, and the replacement of public revenue from the economic surplus that is rent, nevertheless an immediate emancipation from taxation would be too shocking. So they advocate a gradual movement and shift towards the ideal system of public finance.

But suppose we still had chattel slavery, like in the olden South. Would we say to the slaves, "we shall free you, but, sorry, we will do it over 20 years so that we won't upset the slave masters too much"? No, we would see that perpetuating slavery even for a transition period just prolongs the injustice. Great evils need to be ended immediately.

Tax slavery too is a great evil, a curse on workers, a blot on enterprise, and a pox on thrift. Many countries ended slavery quickly and peacefully by compensating the slave owners. The slaves should have been compensated also. Compensation also helps remove political obstacles.

The same applies to tax slavery. Compensate those who lose from a change in policy, and be done with it. Taiwan had a big land reform in the early 1950s and also tapped the land for revenue, and compensated the landlords with bonds. We can do the same with taxes.

There would be a constitutional amendment immediately abolishing all taxes on income other than from land, and also immediately abolishing all sales taxes by all jurisdictions, and all taxes on produced goods, including buildings. Human action would then be tax free.

Some free-market rebels would also abolish spending in one fell swoop, but this would create economic hardship for many. It would also be politically impossible. So government spending would be reformed gradually, many programs phased out or privatized, while those that are retained would be financed from the economy's non-producer surplus, land rent. There would also be public revenue from pollution charges and user fees.

Those with net losses from the great shift would be compensated. The net loss could be measured by calculating the savings from not paying income and sales taxes, and not paying a property tax on buildings, and subtracting from that the increase in the payment based on the value of sites owned. Those relatively few persons with net losses would be compensated with special government bonds.

Since the states would also abolish punitive taxation, the bonds would have to represent financing from both the federal and state governments. A special joint state-federal agency would be established to manage the strategy to exit from taxation. It could be called the Joint Agency Managed Exit Strategy (JAMES). It would issue bonds, JAMES bonds.

JAMES bonds would not be sold to the public, but transferred directly to those having net losses. So there would be little immediate impact on interest rates. At first, the interest paid on JAMES bonds would come from issuing more bonds. But after tax abolition, the great increase in productivity would raise wages and reduce the rationale for transfer payments, and greater productivity would also increase rent, increasing public revenues.

With a tax-free America, investment would pour in from all over the world. Exports would zoom, as they would cost less. Funds flowing in would lower interest rates and raise asset values. The tax wedge gone, the cost of employing labor would fall even as net wages rose, and unemployment would shrivel. As Henry George wrote, it would be like letting go of a compressed spring.

Rent that was suppressed by taxes that lower productivity would now be liberated from distortions, and we would likely see rent clearly as a fifth, possibly a third, of all income, and revenue would flood to the government like a tsunami. As spending fell and revenue rose, the government deficit would turn into a surplus used to buy back the bonds.

Tax-reform economists such as Léon Walras and Hermann-Heinrich Gossen advocated that the state issue bonds to buy land and then lease it out. The JAMES bond approach would not require that large an expense, and would avoid the danger of having the control of land fall to the state. Rather than buy land, the same objective can be accomplished by tapping the rent, like one taps a tree for syrup or a river for water, and compensating those who own trees or rivers if the loss of that rental value is greater than the gain from not having their labor expropriated.

So, there is no reason to go slow on ending tax slavery. As the saying goes, justice delayed is justice denied. Taxes are an evil empire of wealth destruction, so let's bring in JAMES Bonds to rescue us, to wipe out stinking taxes forevermore

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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.