Efficient Government Funding
In a sense all governments compete with each other to retain their taxpaying citizens and residents. Taxpayers can usually relocate to more attractive countries or states if they perceive that the relative quality of life, opportunities, protections, and tax burden are better on the other side of the fence. So in the marketplace of governance systems we could pick an island and set up an idealized federal-only government with the rational goal of fostering the health and wealth of us, its citizens. In our era of fast communications there is no need for redundant state and local govermnents that churn the tax revenue around again and again and waste a lot of it.
First I want to address the tax system. "Before all else there is the land." There is an old idea of a simple land value based tax system that was espoused long ago by Henry George, and I propose to make it even simpler. In the USA the government really owns all of the land. You may think you own your front yard "Fee Simple Absolute" but in realtiy if you don't pay your annual property taxes (rent) our government will eventually foreclose on you and take it back again. On our proposed new island I suggest that we acknowledge this fact and formalize it by having our new federal government lease out individual plots of land to citizen Lessees, each with varying term lengths in years. The annual lease rate would be a percentage rate (similar to a tax rate) and would vary each year according to the Congress' needs but would usually be about 5% of each plot's assessed land value per year. The official assessed value would vary annually according to each land plot's actual market value.
The Lessees could then personally use all of the land in their Leasehold Estate, or sublet parts of it out to various Sublessees for an equal or shorter periods of time. They could even sell their leaseholds or pass them on through inheritence. The leases would state that the land is to be kept in a relatively clean nonpolluted condition. If the land plot was to be permanently mined or pumped of minerals then an additional resource extraction revenue sharing fee would be imposed. Specific areas of government like highway enforcement could charge a single user fee (like a driver's license fee) to cover their actual costs. Thankfully there would be no income, sales, or inheritence taxes.
The first benefit of this system is the simplicity of governance and citizen compliance it provides. Many citizens would be Sublessees and pay no direct government rent (taxes) at all. The government Leessees would know the simple land lease rules and be able to easily comply by paying their rent without employing a hoard of lawyers and accountants. So the cost to society of tallying and collecting the rent (tax) would be very low. A land plot with an improvement (building) on it is usually valued at about 20% of the value of the building. An inherent incentive in this system is to encourage people to produce valuable goods, services, and intellectual property and become as wealthy as they can because none of these things are directly taxed. Circuitously this increased production raises the demand for land and eventually the total rents increase (total tax revenue) and then the Congress can lower the lease rate again. Our government should promote the citizen's efforts and not work against us.
You may ask why would anyone invest in building a structure on rented land, but that is precisely the situation that we already have now. The government can raise and lower our present real estate tax rates at will, so this is really nothing new. If an investor wanted to build an expensive office building or factory then he/she would want to lease the land for the maximum length of time, one hundred years, to make sure they got the full use of the improvement. Additionally, the building permit he/she takes out should cost enough, with accumulated interest, for the government to be able to tear down the building at the end of the lease if it has no residual value to the next Lessee.
At the end of the each individual lease term each plot of land would be again put up for an open public lease rebid. Of course the Lessee could outbid all other competitors and win the next lease for the land, or lose out to a higher bidder. This would prompt them to maintain their buildings in top shape and preserve the trait of them transferring their wealth on to their heirs.
If our new government focused on helping people to be more healthy and productive instead of worrying about how much money they are making it would take a lot of strain out of everyday living and improve everyones quality of life. The ease of this simple public revenue raising system alone would cause people to want to immigrate onto our proposed island.
I think that this single tax system would cause a 0.1 percent annual increase in GDP.
First I want to address the tax system. "Before all else there is the land." There is an old idea of a simple land value based tax system that was espoused long ago by Henry George, and I propose to make it even simpler. In the USA the government really owns all of the land. You may think you own your front yard "Fee Simple Absolute" but in realtiy if you don't pay your annual property taxes (rent) our government will eventually foreclose on you and take it back again. On our proposed new island I suggest that we acknowledge this fact and formalize it by having our new federal government lease out individual plots of land to citizen Lessees, each with varying term lengths in years. The annual lease rate would be a percentage rate (similar to a tax rate) and would vary each year according to the Congress' needs but would usually be about 5% of each plot's assessed land value per year. The official assessed value would vary annually according to each land plot's actual market value.
The Lessees could then personally use all of the land in their Leasehold Estate, or sublet parts of it out to various Sublessees for an equal or shorter periods of time. They could even sell their leaseholds or pass them on through inheritence. The leases would state that the land is to be kept in a relatively clean nonpolluted condition. If the land plot was to be permanently mined or pumped of minerals then an additional resource extraction revenue sharing fee would be imposed. Specific areas of government like highway enforcement could charge a single user fee (like a driver's license fee) to cover their actual costs. Thankfully there would be no income, sales, or inheritence taxes.
The first benefit of this system is the simplicity of governance and citizen compliance it provides. Many citizens would be Sublessees and pay no direct government rent (taxes) at all. The government Leessees would know the simple land lease rules and be able to easily comply by paying their rent without employing a hoard of lawyers and accountants. So the cost to society of tallying and collecting the rent (tax) would be very low. A land plot with an improvement (building) on it is usually valued at about 20% of the value of the building. An inherent incentive in this system is to encourage people to produce valuable goods, services, and intellectual property and become as wealthy as they can because none of these things are directly taxed. Circuitously this increased production raises the demand for land and eventually the total rents increase (total tax revenue) and then the Congress can lower the lease rate again. Our government should promote the citizen's efforts and not work against us.
You may ask why would anyone invest in building a structure on rented land, but that is precisely the situation that we already have now. The government can raise and lower our present real estate tax rates at will, so this is really nothing new. If an investor wanted to build an expensive office building or factory then he/she would want to lease the land for the maximum length of time, one hundred years, to make sure they got the full use of the improvement. Additionally, the building permit he/she takes out should cost enough, with accumulated interest, for the government to be able to tear down the building at the end of the lease if it has no residual value to the next Lessee.
At the end of the each individual lease term each plot of land would be again put up for an open public lease rebid. Of course the Lessee could outbid all other competitors and win the next lease for the land, or lose out to a higher bidder. This would prompt them to maintain their buildings in top shape and preserve the trait of them transferring their wealth on to their heirs.
If our new government focused on helping people to be more healthy and productive instead of worrying about how much money they are making it would take a lot of strain out of everyday living and improve everyones quality of life. The ease of this simple public revenue raising system alone would cause people to want to immigrate onto our proposed island.
I think that this single tax system would cause a 0.1 percent annual increase in GDP.
Steve, this system would likely cause a much more dramatic increase in GDP. For instance, in California, we pay up to 11% personal income tax, approx. 28% federal tax, sales tax of 9.75%, business and corporate taxes, property taxes, vehicle license and smog taxes/fees, business license fees, and a variety of other overt and hidden governmental fees. All of these fees are caused by the ability of federal, state, local, municipal, special districts, boards, commissions, and others to legally impose a tax or fee. Remove that and 36% income taxes disappear, as well as another likely 20% in other fees and taxes combined. That give you over a 50% reduction in tax burden. When user fees for roads, bridges, and others services are added at nominal rates and under controls there is still likely to be 30% improvement in the overall system.
ReplyDeleteThis assumes there is no cost for military, welfare, socialized medicine, and foreign aid (handouts/bribes).
One is left with a way to ensure that individual rights are protected, that personal property rights are protected, and that inheritance rights are protected.
Yep, in high tax states this system would really help out the taxpayers. I used to think this system was too simplistic but the more I thought about it I came to believe it was fair and efficient.
ReplyDeleteInteresting theory but nobody would want to live there. Taxes and rent are not the same. The government doesn't own your land. They own you. They can tax you because they are the government. They can collect unpaid taxes from anything that you have - including your bank account and yes, your house. But they don't own the land itself - you do. Within reason, you don't have to ask the government's permission to add a wing to your house (short of building codes and the like) while you would not be able to receive that permission on a rental.
ReplyDeleteFar from protecting individual rights, this system eliminates them.
As for high taxes, a higher percentage doesn't bring in more income past a certain point because people stop buying, working, investing, whatever else. The available evidence comparing different countries and different times shows that the most you can pull in happens somewhere between 15 and 30 percent - but unfortunately, there is no pinning it down closer than this because of debatable factors.
Moishe,
ReplyDeleteIf you think you own your land try not paying the property taxes (rent) for three years and see your leasehold auctioned off to the next lessee.
With all of the taxes levied today many people pay over 40% of their income in taxes. I am in favor of drastically reducing that tax burden.
Steve