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Submitted by David Harold Chester on

Basically corruption comes down to one thing; the exploitation of most people by a few greedy ones who don't respect them. In many developing countries and in well-developed countries too, corruption comes from the exploitation of the natural resources and also in the improvements. These come from tax payers money, which has created the infrastructure (which should be better shared). I am particularly concerned with the way land is used and misused and there is much that a good investment policy from the worldbank can and should do about it. The following essay explains how and why:

THE MOST SOCIALLY JUST TAX (AND ITS 17 EFFECTS ON THE NATIONAL ECONOMY)

Our present complicated system for taxation is unfair and has many faults. The biggest problem is to arrange it on a socially just and ethical basis. Many companies employ their workers in various ways and pay them diversely. Since these companies are registered in different countries for a number of categories of employment, the determination the criterion for a just tax-system becomes impossible, particularly if based on a fair measure of human work-activity. So why try, when there is a better means available, which is really a true and socially just method?

Adam Smith (“Wealth of Nations”, 1776) explains that land is one of the 3 factors of production (the other 2 being labor and durable capital goods). The usefulness of land is measurable in terms of the price that tenants pay as rent, for access rights to the particular site in question. Land is often considered as being a form of capital, since it is traded similarly to other durable capital goods items. However it is not actually man-made, so rightly it does not fall within this category. The land was originally a gift of nature (if not of God), for which all people should be free to share in its use. But its site-value greatly depends on location and is related to the community density in that region, as well as the natural resources present, such as rivers, minerals, animals and plants of specific use, or of natural beauty, when or after it is possible to reach them. Consequently, most of the land-value is created by man within his society and therefore its advantage should logically and ethically be returned to the community for its general use, as explained by Martin Adams (“LAND- A New Paradigm for a Thriving World”, North Atlantic Books, California, 2015).

However, due to our existing laws, land is owned and formally registered and its value is traded like other items of capital goods, as if it were the product of labor. This right of ownership gives the landlord a big advantage over the rest of the community because he/she determines how the site may be used or if it is to be held out of use. He/she may wait until the city expands and the site becomes more valuable. This speculation in land-values is encouraged by the law, in treating a site of land as if it were an item of private property--that is to say, as if it were an item of capital goods, although it is not (as described by Prof. Mason Gaffney and Fred Harrison in their book: “The Corruption of Economics”, Shepheard-Walwyn, London, 1995).

Regarding taxation and local community spending, the municipal taxes we pay are partly used for improving the infrastructure. This means that the land becomes more useful and valuable without the landlord doing anything—he/she will always benefit from our present tax regime. This also applies when the status of unused land is upgraded and it becomes fit for more intense community development. Then when this news is leaked, after landlords and banks corruptly pay for this information, speculation in land-values is rife, as trade in them follows.

There are many advantages if the land-values were taxed instead of the many other different kinds of production-based activities such as earnings, purchases, capital-gains, home and foreign company investments, etc., (with all their regulations, complications and loop-holes). The only people due to lose from this are those who exploit the growing values of the land, over the past years. “Mere” land ownership confers an undeserved financial benefit, without the owner doing a scrap of work. Consequently, for a truly socially just and ethical kind of taxation to apply there can only be one method–Land-Value Taxation or LVT.

The most basic cause of our continuing poverty is the lack of properly paid work and the reason for this is the limiting control and lack of opportunity for access to the land on which the work must be done. The useful land is monopolized by a landlord, who either holds it out of use (for speculation in its rising value), or charges the tenant heavily for its right of access. In the case when the landlord is also the producer, he/she has a monopolistic control of the land and of the produce too, and can charge more for it or for the access right than an entrepreneur would do, who in seeking greater opportunity and trade, is willing to exploit the situation less during the goods’ sale.

A wise and sensible government would recognize that this problem derives from lack of opportunity to work and earn. It can be solved by the use of a tax-system which encourages the proper use of land and which stops penalizing everything and everybody else except for the greedy few whose site ownership is such a limitation on good prospects. Such a tax-system was proposed 139 years ago by Henry George, a US American economist. Somehow most macro-economists seem never to have heard of him, in common with a whole lot of other experts who work with land. (I would guess that they don’t want to know, which is worse!) In “Progress and Poverty”, of 1879”, reprinted by Schalkenbach Foundation, NY, 1978, Henry George proposed a Single Tax on land-values without there being other kinds of tax on produce, services, capital-gains, etc. The value of a site is related to the economic rent that it generates, when it is properly used. It was this rent that George actually wanted to collect, as if it were a tax (although the terminology of LVT is not strictly correct, because it is not a tax but a revenue and one that is directly connected to the ideal or economic rent, and not the land-value itself.)

This regime of the so called land-value tax (LVT) has 17 features which benefit almost everyone in the economy, except for landlords and banks, who/which do nothing productive and find that land dominance has its own reward. Such a taxation regime collects the economic rent from the land owners of the particular sites. This mostly stable rent depends on the potential productive capacity of the site, whilst its (capitalized) land value varies and depends on the comparable rates of interest and dividends that can be generated by other competing kinds of investments in durable capital goods.

17 Effects of LVT on Government, Land Owners, Communities and Ethics:

Four Aspects for Better Government:

1. LVT, adds to the national income as do other taxation systems, but it should be introduced to replace them.
2. The cost of collecting the LVT will be less than for all of the other taxed production-related items. This is because with LVT its avoidance becomes impossible--the sites are visible to all and their ownership is public knowledge.
3. Consumers will pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the government whose management is of the national affairs.
4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land-values (see below). The speculation in and withholding of unused land is eliminated, see item 7.

Six Aspects Affecting Land Owners:

5. LVT is progressive–owners of the most potentially productive sites will pay the most tax. Urban sites that have the most usefulness--consequently the taxation of their values provides most of the resulting national income. Big rural sites have less value and can be farmed in the appropriate manner, according to their ability to efficiently provide useful consumer produce. Small scale farming is less costly due to more convenient and affordable locations regarding marketing and produce distribution.
6. The land owner pays his potential LVT regardless of how his site is used. A large proportion of the present-day ground-rent from the tenants becomes the LVT, with the result that land has less sales-value but retains a significant rental-value (even when it is not being used).
7. Consequently LVT stops speculation in land prices, because the withholding of land from proper use is no longer worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them becomes less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. With LVT, land prices will initially drop. Speculators in land-values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously this investment will meet the increased demand for produce (see below, items 12 and 13).

Three Aspects Regarding Improved Communities:

11. With LVT, there is a proper incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become less costly too, because entrepreneurs have less difficulty in starting-up their businesses and because they need to pay less ground-rent. So demand grows, and can be better met by supply, whilst unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This also means more advances in technology and cheaper produce of goods.

Four Aspects About Ethics:

14. The collection of taxes from our productive efforts and commerce is socially unjust. LVT replaces this national extortion by gathering the surplus rental income instead. It is surplus because it comes without any exertion from the land-owner or by the banks– LVT is a natural system of national income-gathering.
15. The previous bribery and corruption will cease. It is no longer any advantage for gaining privileged information about planned developments in land. Before, this was due to the leaking of news of municipal plans for housing and industrial growth, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank-balances).
16. The improved use of the more central land of cities reduces the environmental damage due to: a) unused sites being temporary dumping-grounds, and b) the smaller amount of air-polluting fossil-fuel use, when traveling between home and workplace and when distributing produce to sales places.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs because their production costs are reduced. Then untaxed earnings will correspond more closely to the value that the labor puts into the product or service.
Consequently, after LVT has been properly and fully introduced as a Single Tax, it will eliminate poverty, improve business ethics and result in a fairer sharing of the resulting prosperity due to proper land use.