The redistributional flows of fiscal policy depend on reliable output, over time. But how would we know that - just because properties or assets can be assigned specific value for purposes of taxation - the assigned value is a true connection to the assumed output associated with the property?
This conundrum was uppermost in my thoughts, when I first read Progress and Poverty by Henry George in 2015. I found myself grappling with his land taxation ideas again, upon reading a ProMarket interview with Glen Weyl (coauthor of Radical Markets) which I followed up with a Russ Roberts interview. Henry George's work provided some of the inspiration for Radical Markets.
One of my concerns with Weyl's land use suggestions in the interviews, is that some forms of land use aren't actually capable of generating sufficient output for revenue potential - at least not in a straightforward way. Imagine three basic designations for land use: residential, government and commercial. Their approach to "output" is quite diverse! For that matter, private ownership of residential property in the present, is more closely associated with consumption, than production.
What does this reality suggest, for property as a complete form of taxation? After all, the only land (presently) with internally derived output capacity, is property set aside to create product which is readily separated from the scarcities of time and place. Other property usage is too caught in the complexities of general equilibrium flows (such as mortgage deductions), to serve as reliable means of complete taxation. Said another way, property which is utilized for tangible goods, exists in easily measurable form which is also simple to tax. When property is used for purposes which rely on the natural scarcities of time and place (physician time, hospital rooms), total land taxation of these institutions would only pull them further away, from what are already constrained output requirements, given the reality of today's operational costs.
Weyl was concerned about landlords with large property holdings. Nevertheless, if these individuals are fully taxed on land, so too are countless more who don't receive the same benefits of scale. Consequently, for the latter - whether individual property owners or small landlords, there's not much profit involved in ongoing and often extensive maintenance costs. Profits that aren't consumed by the upkeep of traditional building structures, mostly accrue once land ownership begins to scale up. How would the typical single property owner give back land tax value, and have anything left over for property upkeep?
Again, there's a lack of output for redistributional flow as well. Owners of private residential property, tend to be legally bound (unfortunately) to not use residential properties in ways that generate actual output. Rather, land ownership costs have increasingly become the costs of access to productive agglomeration. In other words, while ownership of private residential property is supposed to be capital enhancing, much of this marketplace serves as a user fee for productive economic engagement - one influenced by regional, national and global factors, as well.
By far the most confusing aspect of land valuation (based on Weyl's suggested system), would be the completely taxed land parcels which are utilized for institutional purposes that already benefit from redistributional flows. Hospitals and schools in particularly are mostly organized as dependent secondary markets, many of which would not even be in operation, were it not for tax based revenue. And yet hospitals already need to rely on price making (markups), since the time and place specificity of their product limits the output they can generate, in relation to the value of their buildings and property. How does one fully tax them, based on the often valuable land where they happen to reside? Ultimately, long term taxation potential is contingent on output, and whether that output represents what the property can generate via internal means.
In spite of these problems with total land taxation, what's helpful in this renewed dialogue, is how everyone involved can reconsider aggregate resource capacity, with what is essentially a blank slate approach. This is really important, for decentralized approaches will be needed, to address the growing shortcomings of fiscal flows in today's centralized economies.
A blank slate approach, for instance, makes it reasonable to ask: What are the most important purposes our tax systems can serve? Can we create multiple versions, instead of one size fits all infrastructure requirements? How might we arrive at mutually desirable ends, if and when taxation turns out to be insufficient? When do we actually create new wealth which is actually viable as a revenue source for redistribution? Hint: When resource use or product are time or place dependent, they can be utilized more effectively at the source, but their output revenue can't be redistributed, unless extensive markups are involved. It's all about potential circles of sustainability, and today's governments need all the help they can get, given the growing fiscal burdens of the present.
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