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A good tax system: one component set within a combination of sensible reforms

February 11, 2016

edward lucasThough his views on security are unappealing, Edward Lucas (the Economist), probably expresses the views of many when he writes: Cosy deals with Google leave us all worse off :

“A good tax system is simple, sweeping and severe. There should be no room for lobbying by the powerful; nor should politicians be able to dole out favours to companies or activities that they want to encourage . . . “

He notes that taxes directly applied to economic activity ‘dampen’ enterprise; if income is taxed people are deterred from earning more money or encouraged to inflate their expenses, or pursue tax fiddles and points out that:

“Other countries do it better. I used to live in Estonia, which boasts one of the best and simplest tax systems in the world.

estonia tax officeEd: see http://www.emta.ee/?id=29268

“Corporate profits and individual income are taxed at a flat 21%. Your tax return appears on your computer screen with almost everything already filled in (Estonia is a pioneer in e-government). . . Estonia spends only 0.34% of its tax take on collection and administration. We spend more than twice that”. He adds:

“Even better, Estonia taxes land values*. This idea has been neglected, chiefly, Lucas adds, because of the power of the land lobby. Advantages:

  • Land-value taxes are cheap and easy to collect: land cannot go and hide offshore.
  • If the owner fails to pay up, you can seize the land and auction it.
  • It stimulates economic activity. Owners paying land-value taxes cannot afford to keep valuable sites derelict. They will build.

Land often gains value because of other people’s efforts — the infrastructure, public services and neighbourhood that the land user enjoys. It makes perfect sense to tax that benefit and return some of it to the community. Poor people almost never own land; rich people own lots of it. So land-value taxation is progressive, too.

James Robertson sees charges on land-rent values as one component set within a combination of sensible reforms in FUTURE MONEY (p140): a summarised in Chapters 3 and 4

Provide the national money supply as a public service

Stop the creation of money by commercial banks as profit-making debt and transfer responsibility to the central bank for creating money debt-free and giving it as public revenue to the elected government.

Develop other sources of revenue; shift taxes off ‘goods’ onto ‘bads’

  • Reduce and eventually abolish taxes on value added, incomes and profits, which penalise useful work and enterprise.
  • Replace those with taxes or charges on things and activities that subtract value from common resources. These will include taxes or charges on land-rent values and on the use or right to use other common (mainly environmental) resources and take into account the capacity of the environment to absorb pollution and waste.

Create a people-centred shift in public spending

Introduce a Citizen’s Income – a tax-free income paid to every man, woman and child as a right of citizenship. The additional costs will be met by reducing the costs of interest on government debt, of perverse subsidies, of contracting out the provision of public infrastructure and services to the commercial business and financial sector, and of public sector inefficiency and waste.

——————

*Ed: (Wiki) A land value tax is a progressive tax, in that the heaviest tax burden would fall on the wealthiest. Land value taxation is currently implemented throughout Denmark, Estonia, Lithuania, Russia, Hong Kong, Singapore, and Taiwan; it has also been applied in subregions of Australia (New South Wales), Mexico (Mexicali), and the United States (Pennsylvania). See video of testimony by Martin Wolf (FT) to the Economic Affairs Committee.

 

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