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The Jerome Levy Economic Institute Conference: land, wealth and poverty
American Journal of Economics and Sociology, The, July, 1996 by J. Ted Gwartney, Nicolaus Tideman
I
Is Land and Resource Rent Adequate for Public Needs?
Land is the basis of human existence. It is used by all people at all times. It is nature's gift to mankind which allows life to continue and prosper. It has great value.
What is included in land value? Land is the material universe outside of humankind itself. It includes all natural materials, "resources" and forces. Nothing which is freely supplied by nature should be classified as "capital" as it frequently is, rather it should, indeed, must, properly be categorized as land.
Most people think that land is capable of contributing only a small part of public revenue - the revenues required by governments. But as society progresses, land and resources become major forces in determining progress or poverty.
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At present there are no consistently used, and thus reliable, definitions or estimates of the value of land (and resources) in the United States or elsewhere. Here is a challenge to students of economics, an opportunity to make a real and lasting contribution to good government and civilization. We should know the true value of land rent throughout the world.
However, while we lack any truly solid estimates, a group of land economists did make an informal cursory determination of national land values. They used market value estimates of updated assessment rolls, surface and subsurface resources, airwaves and waterways, charges for pollution and innumerable other factors properly included in a definition of land.
For the United States, this undocumented estimate came to over $30 trillion. The collection of only a 4% tax on this value would provide enough revenue to allow the elimination of all other taxes in the country!
It is unreasonable to expect our society immediately to just drop the income, sales and property taxes of today. But, it is certainly reasonable to suggest that people might want to test and then to phase-in this means of raising public revenue from land and resources rather than from taxes that hamper production and well-being.
II
The Morality of Taxation: The Local Case
From a moral perspective, taxation is dubious or worse. We tell our fellow citizens that if they do not pay taxes that we say they owe, their property will be seized or they will be sent to prison. Why do we treat people this way? Is there a justification?
The dubiousness of taxation increases when we consider its origins. Government seems to have originated as roving bandits learned that total destruction was less profitable than protecting their victims from other bandits and allowing them to keep a fraction of what they produced (Olson, 1993). In time, scheduled partial plunder evolved into taxation. Over the centuries, regimes that started as tyrannies evolved into democracies. The public sector evolved from an apparatus for implementing the will of despots into a mechanism for carrying out democratic decisions. But public finance continues to rely on the power of tax collectors, developed under early tyrants, to coerce citizen to pay taxes. The wrath that citizens feel toward tax collectors is probably the strongest antagonistic feeling that citizens have toward a governmental institution. Why do we allow ourselves to do this to one another?
There is a gentler side of taxation that provides some explanation of our tolerance of this coercion. Taxation can be the way that people achieve their common purposes. People may agree to be taxed so that there will be money to pay for the public services they want. From this perspective, taxation may be considered no more than the dues for belonging to a club that provides people with things for which they would rather pay their share of than do without. However, to make this "voluntary exchange" theory of taxation relevant, people must be able to choose freely whether or not to "join the club," to be a citizen of the taxing jurisdiction. With all land claimed by some taxing jurisdiction, the choice isn't exactly free.
The problem of morality in taxation is the following: How do we retain the possibility of people pooling their contributions to the cost of services that they agree are worthwhile, while eliminating the possibility of citizens treating their fellow citizens as targets of plunder? What are the limits of obligations that we can justly impose on our fellow citizens? And how do we set up a structure of government that will ensure that these limits are observed?
The turn-of-the-century Swedish economist, Knut Wicksell, had ideas that dealt with some of these questions (Wicksell, 1958 [1896]). Wicksell argued that if a public expenditure is worthwhile, then there must be some allocation among citizens of the taxes that are needed to finance the expenditure that would make everyone better off. If legislatures were required to achieve unanimity to pass spending programs, then they would have to find allocations of taxes that were unanimously acceptable before they could pass those programs. In that case, majorities would have no opportunity to exploit minorities, and inefficient proposals would be prevented from passing as well. Wicksell recognized that if complete unanimity were required, strategic holdouts would be likely to prevent any program from passing, so he was content to recommend a rule of "near-unanimity," without being specific about what this meant.
