Some Support for a Land Value Tax in New Zealand

I suggested a few weeks ago that a land value tax would be preferable to any other tax system in terms of both economic efficiency and fairness. So, I was pleased to see the New Zealand Government’s tax working group come out in favour of a land tax over a capital gains tax (hat tip: Blaise or Eric via Google Reader).

I would prefer a land tax as a complete replacement for income and consumption taxes, an option certainly not on the table; and I share Eric’s concern that adding another tax will increase the total tax take. Still, it’s nice to see an idea which is so obviously good from a standard welfare economics perspective being taken seriously.

Working paper from Andrew Coleman and Arthur Grimes here.

Inside the Mind of a Politician: Taxation is Voluntary

Something about withholding taxes. I don’t get it.

It’s possible to support government without being a complete moron. Denying that government is force is not the way to do it.

Hat tip: The Peace, Freedom and Prosperity Movement.

Where my Georgists at?

Many libertarians accept that government, and therefore taxation, is necessary. If taxation is unavoidable, the economically literate libertarian should prefer a tax system with minimal distortionary effect and injustice. I think the Georgist idea of a single tax on the unimproved value of land is clearly the best tax on both counts, but is seldom discussed by economists or policy wonks.

Taxation distorts economic activity by discouraging the taxed activity. If we tax income, people will work less. That’s bad. Given that (almost) all the land there’s ever going to be is already in existence and can’t be destroyed, a tax on the unimproved value of land wouldn’t have these distortionary effects. Of course, there’s really no such thing as the unimproved value of land: the value of a particular piece of land depends on improvements made in neighbouring areas. Still, such a tax would surely be less distortionary than other forms of taxation.

Many libertarians will object that efficient theft is still theft, and therefore wrong. I’ve never completely bought in to the taxation is theft line, since I think property rights are themselves morally problematic. I really like property rights, and I think it’s pretty indisputable that we’d all be poor and miserable in a world without them.

I don’t like the quasi-mystical overtones of the “mixing one’s labour” metaphor, but I think some version of homesteading principle is the only way to think about just and reasonable acquisition. The Lockean proviso that we leave enough and as good for others, though, is never completely met in reality. Even if there’s an abundance of unclaimed land, location remains important. If I claim exclusive right to a piece of land, I am reducing the options available to everyone else.

I don’t like Nozick’s move of interpreting the Lockean proviso as being met if everybody is better off in a system of private property rights than the alternative. This neglects the intermediate possibility of attenuated property rights. It seems fairly plausible that everyone would prefer a system in which people could claim private ownership of land, but only on the condition that they compensate others – in Georgist terms, paying rent to the community. There are some problems in terms of justice, but, to me, there much less serious than the problems of current tax systems.

Milton Friedman once called it “the least-bad tax” (but to my knowledge never discussed the possibility in any depth). I’d go further and say it could be a positively good tax. If we could design a government and ensured it remained within predefined bounds, a nightwatchman state funded by a single land tax could be preferable (in expected value terms) to anarchism. (Constraining government in this way is impossible, though, which is why I’m an anarchist. Still, the “imagine a perfect government; wish really hard” approach is the dominant one in political discourse.)

Why, then, is the idea largely confined the certain portions of the left-libertarian fringe? With few exceptions, free market economists have neglected the possibility of replacing income or consumption taxes with land taxes. Fred Foldvary has done some great work, but that’s about it.

I don’t get it. Any ideas?

Quote of the Day*

It sounds almost like deadpan black humor to state that “except for raising the means,” government need not rely on coercion to render services. Surely, once it has raised the means, it has applied all the coercion it can possibly need; if we treat such coercion as an exception, what is left of the rule? – and what could a liberal ever object to?

Anthony de Jasay criticising Hayek, Against Politics, p. 50.  

I love the mild vitriol, but don’t quite agree. Governments has proved very willing to engage in much coercive behaviour in addition to raising the means. I would be ecstatic if the New Zealand government kept current levels of taxation and spending but did not engage in any other sort of coercion. A removal of drug prohibition and paternalistic regulation would hugely improve freedom and welfare. If we ignore coercive taxation, there’s plenty left for a liberal to object to.  

*Yes, I know I don’t post these daily.