19 Jan 2017

Land Taxes

There are three factors of production: land, capital, and labour. Respectively these yield: rent, profit, and wages. Governments raise money by taxing these. But over the years the proportion that each makes to the total has changed. For example a document form the National Archive notes that the contribution from land taxes has fallen dramatically. 

What this means is that for the government to raise taxes it must rely more heavily on taxing profits and wages. Taxing profit is seen as having a negative effect on business, and since business runs government, tax on profits are also dropping. Tax on wages bear the brunt. And wages are squeezed by business so as to maximise profit. The other source of taxation is indirect: such as taxes on spending or inheritance.

Land is special though. One must risk capital and apply labour to it to make profit. Wages are related to working. But land just accumulates value with no risk or effort. Land prices just keep going up. If the council improves your road using tax money, the value of the land goes up without you doing anything, and your contribution through taxes is minimal. Owning land is a way to accumulate wealth with no effort and very low taxes. Indeed the wealthy are adept at avoiding taxes, so the big landowners are getting more wealthy at the cost of everyone else. This in turn means that the demand for land is high and pushes up the price - creating a vicious circle.

So the rational thing to do would be to levy significantly higher land taxes and reduce the taxation on wages and profits; or lower the taxes on spending (VAT). This would cause more money to circulate in the economy. And it would force the wealthy to pay their fair share of taxes - you cannot hide land in an offshore tax haven!

No comments:

Post a Comment

Keep is seemly & on-topic. Thanks.