A Georgist Income

Justin Fox (Bloomberg View) tells us that economists favor property taxes (specifically land taxes). There are two main reasons for this.

First, a tax tends to distort activity, causing people to avoid the thing being taxed. An income tax causes people to work less. A sales tax causes people to avoid transacting with each other. Economists hate to see good things (like work and economic exchange) unnaturally suppressed.

A land tax, however, has nothing to distort except the creation of new land, which is not something that happens anyway, generally.

Second, a land tax will put pressure on anyone who owns valuable land and is not using it productively. If someone owns one-half acre in the middle of San Francisco and is using it for one single-family dwelling, then they should be encouraged to make more productive use of it, sell it to someone who will, or compensate society for their wasteful use of valuable land.

The most famous advocate of a land tax was the 19th century economist Henry George. He said:

The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community.

~ Henry George, Progress and Poverty, Book VIII, Chapter 3

A land tax is slightly different than a property tax. The difference is whether it is based on the value of the underlying land only or the value of the land plus the improvements to it. If you tax improvements, however, you discourage them. For this reason, I favor a tax on just the raw value of the underlying land.

There is a disadvantage to a land tax, however. I bristle at the thought that when I buy some land, I must keep making payments or it can be taken away from me. There is a libertarian inside of me that desperately wants the financial security of owning land "free and clear", without having to make payments to anyone for it.

I propose we resolve this difficulty by combining the land tax with giving every adult citizen a land credit for a fair amount of land.

Every citizen

The land credit is for persons—flesh-and-blood citizens—not corporations. The idea is that every person deserves a place to lay their head at night.

Credit

The credit should be fully refundable. Those who can live on less than their fair share of land should be rewarded for their conservancy.

Fair amount of land

One interesting question is what the land credit should be. Here is one starting point: The US Bureau of Economic Analysis estimates the land value of the 48 contiguous states to be $23 trillion, although $1.8 trillion is owned by the federal government. After adding in in Alaska and Hawaii and dividing it equally among 250 million adult citizens, we end up with about $100,000 per person. If the land credit were based on that, then someone who owns $100,000 worth of land would pay no taxes. Someone who owns more would pay taxes, and someone who owns less would get a payment. Whatever tax rate is chosen, basing the credit on this calculation makes the whole plan revenue-neutral. The actual credit value could be recalculated every few years based on the total value of U.S. land and the number of adult citizens.

Tax rate

Another difficult question is that of the tax rate for a land tax. The higher we can make it, the more pressure it generates for land equality. It should be large enough to matter, above 1% annually. However, it should probably be below the productive value of land, which I would guess is under 5% per year. Perhaps, as many Georgists believe, we should explicitly try to set the rate to the productive value of land so that owning land is investment-neutral. Land ownership would no longer be a permanent, exponential investment.

Income

At a tax rate of 5%, the land credit rebate would provide $5,000 per year to a citizen who did not own land. That payment is in the ballpark of something that could be called a universal basic income. A higher rate would be even better for this purpose.

On its own, a basic income has been proposed as a solution if we experience large unemployment due to software and automation in coming decades. A basic income would provide a universal and automatic safety net for those left behind by the job market of tomorrow, although the only revenue source usually proposed is a reduction in other social programs. While Milton Friedman endorsed similar ideas, many conservatives oppose it in principle. They can not abide doling out free money.

By coupling the basic income to the land tax, however, the two policies balance each other out both economically and philosophically. In addition to making the whole package revenue-neutral, implementing them together is a way to declare that our largest natural monopoly and greatest natural resource, the land under our feet, deserves to be shared equally.

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