Some people who believe in freedom are asking, how would public goods be financed without any taxes?

There are, of course, many books on how governance and collective goods can be financed without taxes, but “go and read” is not a good answer for busy people, and one usually has to slog through a lot of text in order to find nuggets of policy proposals. What is needed is a short and focused essay, as follows.

Fees for transit, parking, and highways are most efficient when they are just high enough to prevent congestion. Schools can be financed by tuition as a user fees. As for the poor, either a truly free market would eliminate poverty, or else, if there are still some poor folks who are not being helped by charity, they would get vouchers for essential services.

First, some civic services can be paid from voluntary user fees. These include parking meters, bridge tolls, fees to enter a park, and tuition for schooling. Fees for transit, parking, and highways are most efficient when they are just high enough to prevent congestion. Schools can be financed by tuition as a user fees. As for the poor, either a truly free market would eliminate poverty, or else, if there are still some poor folks who are not being helped by charity, they would get vouchers for essential services.

Secondly, we need to distinguish taxation in substance from taxation in form. Taxation in substance is the imposition of costs not directly linked to any service or penalty. Taxation in form is a required payment to a government. Two taxes in form, which are not taxes in substance, are pollution charges and levies on land rent or land value. In substance, a pollution charge is compensation for trespass and damages on the property of others. In substance, a levy on land rent or land value is a payment for property—rent—that morally belongs to the members of a community rather than the title holder.

The first moral law of the market is: “To the creator belongs the creation.” The second moral law of the market is: “When there is no creator but nature, the profit of the earth is equally for all.”

The first moral law of the market is: “To the creator belongs the creation.” The second moral law of the market is: “When there is no creator but nature, the profit of the earth is equally for all.”

But suppose a free marketeer rejects all taxes in form and rejects the equality rights to the gifts of nature. Polluters would pay for damages based on lawsuits with transferrable torts; people may sue for pollution damage, and may also sell their lawsuits, and the lawsuit could require periodic compensation from polluters.

Finally, we need to analyze the provision of collective goods. The market itself provides the answer. There are, today, land trusts, condominiums, homeowner associations, hotels, shopping centers, marinas, and ships that provide collective goods, financed by rental payments.

There is a proposal to build large platforms in the ocean on which would be built independent private communities. This is called “seasteading”. These communities would finance their civic goods by renting out space. The better locations, whether at the edges with views of the sea, or at the center where transportation costs are minimized, would fetch higher rentals. Even though the platform is a capital good, not land, and with the rent of the ocean location being zero, the locational charges would be similar to the taxation of land rent or land value.

Private communities today pay for their collective goods with rentals, including the assessments of condominiums and homeowner associations, the fees paid for a hotel room, the rental paid by an office or store in a building, or the rent paid to a land trust. The fees pay for the real estate unit and also for the associated collective goods.

If you seek to stay at a hotel, the administration would not ask you about your income, or total spending, or your personal property. Yet that is how governments pay for their collective goods.  

The basic answer to how governance and collective goods can be financed without taxes is that they would be financed from the rental value of the space and the associated capital goods. Some “anarcho-capitalists” advocate contracts between individuals and firms that sell insurance, protection, and fire protection. This is possible, although most human beings have lived in geographic communities, and the most efficient way to provide streets is via a community association rather than individuals paying for their own portion of a street and then having to engage in multiple negotiations with their neighbors for easements.

Governments today tax mostly labor and capital to pay for public goods which end up pumping up land rent and land value. In an anarchist society, landowners would have to pay for civic services. There would be greater economic efficiency, equality, and prosperity with geo-anarchism, in which most folks would live in contractual communities that pay land rent both for civic services and for equal distribution in cash.

Geolibertarians believe that we can finance the collective goods of a free society from land rent, and that would not be taxation in substance, because, as written in Ecclesiastes 5:9, “the profit of the earth is for all.” But non-geo anarchism would bring society much closer to geoism than today’s world, because without taxes, land ownership would not get subsidized. Governments today tax mostly labor and capital to pay for public goods which end up pumping up land rent and land value. In an anarchist society, landowners would have to pay for civic services.

There would be greater economic efficiency, equality, and prosperity with geo-anarchism, in which most folks would live in contractual communities that pay land rent both for civic services and for equal distribution in cash. But even allodial anarchism, in which the title holders are not required to pay rent, would end up using rent, along with user fees, to pay for protection, streets, and bridges.

The real puzzle is why anyone thinks this is such a difficult question.

© Text Copyright Fred Foldvary, Ph.D. rights reserved.
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