Image above by Wonderlane.

Macrobusiness posted an article today titled “All taxes come out of rents”, link here. For some reason, I became unable to comment on my third response to an exchange with @Rumplestatskin. Two emails to Macrobusiness and a few exchanges on twitter simply resulted in stone cold silence. Hence I will post the exchange below and add my last reply that, for some reason, would not find its way onto their post.

Dibit:

“His key idea, which would have been uncontroversial prior to the rise of the neoclassical school, is that all taxes come out of rents (ATCOR). This means that a single tax on the rents earned from ownership of natural resources can always provide sufficient taxation revenue.

Sorry, but I find the above idea rather stupid.

We could arbitrarily choose any point in the circular flow of money through our economy and say, “the buck must stop here”.

We could say, “all taxes come out of workers”, “all taxes come out of firms”, “all taxes come out of GST”.

Yes, you can argue that a single tax on the ownership of natural resources can always provide sufficient taxation, but you can also argue that company tax or income tax or GST can always provide sufficient taxation. The point is you just have to tax anything that is CRITICAL to the economy.

It is silly to say it’s the worker that is the ultimate source of taxation revenue and then tax a worker because he is a worker, irrespective of whether he is actually working or not.”

Rumplestatskin:

“We could arbitrarily choose any point in the circular flow of money through our economy and say, “the buck must stop here”

Sure. That’s perfectly correct. The point is to link this with the physical reality that land ownership provides a right to the owner without any obligation to contribute to productive output.

The second point is that, unlike many other points in the flow of money where taxes are issued, land taxes do not provide incentives to change behaviour in order to avoid the tax.

“It is silly to say it’s the worker that is the ultimate source of taxation revenue and then tax a worker because he is a worker, irrespective of whether he is actually working or not.”

Not really. That’s called a head tax and is known to be very economically efficient, even if it socially is not. For example, you cannot dispose of yourself to avoid paying the tax. Whereas with land you can sell it to someone willing to make use of the land and pay the tax.

Also, taxes on wages are simply head taxes as a proportion of labour value. Each worker has a value that is reflected in their wage, and government takes a fixed proportion (or usually a scale of rates) of that in revenue.

The main arguments to prefer land is that 1) land owners do not actually have to do anything except be lucky enough to own it to earn the money, whereas labourers must exert their efforts to production in order to have a wage value, 2) there are no incentive effects on land, and 3) administration of land ownership and management of the tax is simply, whereas higher taxes on wages can lead to much more cash-in-hand work.

There are probably more reasons.”

Dibit:

““The point is to link this with the physical reality that land ownership provides a right to the owner without any obligation to contribute to productive output.”

For clarity I would ask you to expand on the above statement.

Do you believe that it is good/bad/neutral that a landowner does not have to contribute to productive output?

“The second point is that, unlike many other points in the flow of money where taxes are issued, land taxes do not provide incentives to change behaviour in order to avoid the tax.”

I disagree, let’s assume a full switch to land tax only right now so there is no income/company tax.

Do you believe all the corporates are going to leave their headquarters in the city, or move outward next week to drop their tax bill to near zero?

“Not really. That’s called a head tax and is known to be very economically efficient, even if it socially is not. For example, you cannot dispose of yourself to avoid paying the tax. Whereas with land you can sell it to someone willing to make use of the land and pay the tax.”

Incorrect. I can sell my home to avoid land tax, but then I have to move into a rental, where the landowner is passing all the land tax to me via rent.”

Rumplstatskin:

“The point about linking the cycle of money, and the physical nature of production is that there is ‘beginning’ point, a starting point, to production. In the beginning, there was land. All the benefits from land to production are provided regardless of the ownership of it. So while money cycles through the hands of land owners, they need not contribute anything to society in order to earn the rent. The moral foundation of the argument to tax land is that the land was a gift of nature, and the income to those staking and ownership claim is a gift from the productive efforts of others.

“Incorrect. I can sell my home to avoid land tax, but then I have to move into a rental, where the landowner is passing all the land tax to me via rent.”

Aha! So what you are saying is that it doesn’t actually matter who pays the tax, we all as a society all pay. This is of course perfectly true, and offers another reason for advocating a single tax on land. You must also agree then that the unemployed living on welfare also contributes to the tax revenues of society. Once you acknowledge this point a whole lot of nonsense in economic and political debate breaks down.

“I disagree, let’s assume a full switch to land tax only right now so there is no income/company tax. Do you believe all the corporates are going to leave their headquarters in the city, or move outward next week to drop their tax bill to near zero?”

Not sure what you are getting at here. I don’t think that will happen. I mean, they would have done it anyway to avoid rents, so I don’t see why they would move now when my whole point is that the tax comes from the same rent they are already paying.

Further, if everyone moves out of the city the land values in the city will fall, and the land values at the new locations will rise.”

Dibit:

Rumples,

“Not sure what you are getting at here. I don’t think that will happen. I mean, they would have done it anyway to avoid rents, so I don’t see why they would move now when my whole point is that the tax comes from the same rent they are already paying.”

They would move now because their land tax bill will massively increase if the government needs to collect $300 billion per year from land tax, instead of company/income tax.

“Aha! So what you are saying is that it doesn’t actually matter who pays the tax, we all as a society all pay. This is of course perfectly true, and offers another reason for advocating a single tax on land. You must also agree then that the unemployed living on welfare also contributes to the tax revenues of society. Once you acknowledge this point a whole lot of nonsense in economic and political debate breaks down.”

I don’t understand what you’re trying to say.

If it doesn’t matter who pays tax, how does that support a land tax?

How does acknowledging that people on welfare also pay tax break down some nonsense? What nonsense are you referring too?

“The moral foundation of the argument to tax land is that the land was a gift of nature, and the income to those staking and ownership claim is a gift from the productive efforts of others.”

If that moral argument were sound, we could apply it universally and it would remain fair.

Let’s do so.

Apply it to shares.

Is it morally wrong to own shares in a company when the shareholder does nothing to contribute to how the wealth generated by the company?

If it is wrong, then why?

If it’s not wrong, then why?

——–

Macrobusiness and land tax; comments turned off?

Macrobusiness land tax reply twitter

Therefore, I have added a link to his post to the bottom of the Prosper Australia page.

@TaxpayersParty