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The Income Tax Box
Personal Income Tax
TAXING EARNINGS DOESN’T
WORK As taxing land spurs employment, taxing labor and capital does just the opposite. Taxing salaries makes it more expensive to hire people. Taxing earned profits makes it more expensive to invest in firms that hire people. If you want jobs, don’t tax them. Demanding jobs while taxing wages is irrational. When we tax (or in other ways reduce) one’s efforts, most people naturally produce less. Less output not only shrinks private assets but also the formation of public assets downstream. Unlike taxing earned incomes, which shrinks the pie, collecting rent grows the pie. While taxes on effort lessen the motivation to produce, charging people rent for what’s already been provided, by definition, does not diminish the motive to produce. Instead, recovering rent removes the private profit from speculating in land and resources. And once we redirect revenue from sweetheart deals (e.g., Pentagon contracts), tax breaks (e.g., depletion allowances), and subsidies (e.g., agri-business support) into a general dividend, then why bother currying favours from the state? Finding rent-seeking from both nature and the legislature less profitable, investors would turn to improving production: new technology and worker re-training, providing society more from less. Read the whole article Corporate Income Tax Nic Tideman: A Bill of Economic Rights and Obligations
Preamble Our nation was founded on the idea
that we are all created equal, that we are endowed by our
Creator with certain inalienable rights, and that among
these are life, liberty, and the pursuit of
happiness.
In living, expressing our liberty, and pursuing happiness we sometimes conflict with one another, so we need a shared understanding of the extent of the sphere of equal rights given to every person, and beyond that sphere our obligation to respect the rights of others. This Bill is concerned with the economic aspects of these rights and obligations. Article 1: Each person has the right to decide whether and how to use his or her talents. Those who are self-employed have a right to the full economic product of their efforts. Those who are employed by others have a right to the full amount of the compensation that their employers agree to pay them. Thus Congress and state legislatures shall levy no tax on wages or interest or spending. ...
Article 3: All persons, in all generations,
have equal rights to natural opportunities, such as the
use of land, natural resources, and the frequency
spectrum. Therefore Congress shall place levies on states
to equalize among states the per capita annual value of
access to natural opportunities, and to compensate for
the harmful effects of activities in states on other
states and on future generations. State legislatures
shall place corresponding levies on their subdivisions.
... Read the
entire article Mason Gaffney: The Taxable Surplus of Land: Measuring, Guarding and Gathering It
1. Common Property in Land is Compatible with the
Market Economy.
2. The Net Product of Land is the Taxable Surplus
A. To socialize the taxable surplus, land rent,
effectively, you must define and identify it carefully,
and structure your taxes to home in on it.
B. Taxable surplus is also what you can tax without driving land into the wrong use. C. To tax rent we must be sure there is rent to tax, and we must adopt public policies to husband and maximize it, and avoid policies that lower and dissipate it.
i. Avoid "perverse subsidies."
ii. Avoid letting lessees of public land conceal their revenues. iii. Avoid letting lessees or taxpayers pad their costs to understate their net revenues. iv. Avoid dissipating rent by allowing open access to resources like fisheries, v. Avoid trying to distribute rents to consumers by capping prices below the market.
D. Raising output by removing tax bias
E. Maximizing public revenue. F. Sustaining the tax base
3. Taxing the Net Product of Land Permits Untaxing
Labor
4. Taxing the Net Product of Land Permits Untaxing Capital 5. Taxing the Net Product of Land Provides Ample Public Revenues: a Master Solution to Many Problems
A. Public revenues will support the ruble.
B. Your public credit will, of course, recover to AAA rating when lenders see that there is a strong flow of revenue to pay public debts. C. Never again need you bend to any "advice" or commands from alien lenders, nor endure patronizing, humiliating homilies from alien bankers, nor beg any foreign power for aid. D. If you again feel the need (as I hope you will not) to rebuild your military, you will of course require strong revenues. E. Strong national revenues are required to unite Russia, and keep it one nation.
Summary
There are many more possible tax types we might consider, taxes imposed on parts of C, but not all. A payroll tax is an example. This tax would discourage the use of labor on land, but not the use of capital, and so would have two biases: less labor use, with the same capital use, or even more capital use as capital substitutes for labor. We do not here pursue all such possibilities of bad tax policy, for they are too numerous. The major point is that taxes on any base other than N, the Net Product of land, bias the market against the best and fullest use of land. ...
Taxing the Net Product of Land Permits
Untaxing Labor
The IMF and its allies advise you to impose heavy taxes on the payrolls of labor, and on employers who hire labor, and on the goods labor must buy to survive and support families. Then they turn around and tell you that labor-intensive operations, like some of your coal mines, are inefficient because labor is so costly, even though the workers are getting very little after taxes. They advise you to downsize or close these operations, throwing labor out of work. They even lend you money for the purpose: not to develop and build up Russia, but to dismantle its industry, which they call "restructuring," and throw its workers onto welfare. In a few specific cases they may be right, but in general, this is a strange way to develop Russia's economy and living standards! It is enough to make one wonder whose welfare they have in mind. To restructure your industry, first uplift incentives to build and man new plants; then let managers close old ones by their own free individual choice, as their workers leave for better jobs. We see from Table 1, and the analysis following it, that
You will also collect more taxes,
as shown, by shifting the tax base to the Net Product of
land. Lower welfare costs, coupled with higher tax
collections, will balance your budget and lead to the day
when you can even run a surplus. With these new surplus
funds you can pay off old debts, if you choose to. I take
no position and offer no advice on whether you should pay
off old debts from the Soviet era: that is a judgment
call for you to make, based on your evaluation of the
history of those debts, and how obligated you feel. I do
know, though, that if you have good public revenues for
the future, you will have good credit, regardless of the
past. Lenders will seek you out, eager to become your
creditors again. That is the clear lesson of U.S.
history. We have had two centuries of experience in which
many of our states and cities repudiated debts, many of
them owed to foreigners, only to borrow from them again
within a few years. Read the whole
article Mason Gaffney: The Property Tax is a Progressive Tax
The central question is, why rank
by income at all -- any concept of income? When we
do that we accept income-fundamentalism, a kind of
philosophical imperialism where Adjusted Gross Income on
Form 1040 is the basic reference datum against which to
measure and judge everything. "Similar circumstances"
mean similar AGI, and similar circumstances deserve
similar taxes. In effect this means we judge the property
tax on the basis of how closely it resembles the income
tax, in every detail. Since nothing resembles the income
tax so much as the income tax, the property tax looks
inferior.
Again, the concept called "income-elasticity of demand for wealth" contains implicit income - Chauvinism. It implies one-way causation: income causes wealth. But wealth also causes income, and as Klein points out that changes the rules for relating them.88 No longer can income be the simple ranking variable. If the property tax had no rationale of its own we would be forced to accept income fundamentalism. But if the property tax has a rationale, then it is legitimate to rank by wealth, and fault the income tax for failing to tax large properties adequately. Here is an outline rationale for the property tax. 1. "Ability-to-pay" derives from wealth as well as current income. James Tobin, Arnold Zellner, Taylor and Houthakker, Harold Somers, and others have stressed this lately. The old cliche that "taxes are paid out of income" is as empty as the one that we consume "out of income." We spend money, and it is not labelled. 2. The property tax asserts a public equity in land which was won and is defended by joint efforts, and whose value derives from public works and spillovers, not from the owners' efforts. It exempts human effort, thus rewarding service to the community and denying the state any equity in the bodies of its citizens whose freedom and dignity is thus enhanced in their capacity as human beings, as distinct from owners of wealth. 3. Property taxes reduce the differential effect of inherited wealth on the current generation. They strike directly at concentration of economic and other power based on wealth, promoting competition and equal opportunity. Property as collateral is a source of invisible income (credit rating). Taxing property reduces the differential advantage of the rich in credit rationing. 4. Property income of a given dollar value places the receiver on a higher welfare plane than labor income, because he needn't work for it. $10,000 a year received by dint of working long hours in a coal mine with black lung disease is not the same as $10,000 plus a life of ease. 5. The property tax is needed to plug loopholes in the income tax, which is inexorably devolving into a payroll tax. If one finds that rationale compelling, then the proper approach is to rank by wealth. ... On Defining Income and Wealth Dick Netzer, like others, uses AGI as the reference standard against which to match the property tax and find it regressive.(40) A certain citizen in 1970 reported no AGI, but heavy property taxes, which might make the property tax quite regressive were it not Ronald Reagan. Yet he is not alone, and it seems harsh to select a measure that makes the property tax regressive because it is the only tax many rich men pay. General Oppenheimer has written a fine set of manuals on how to reach Zero AGI by losing money farming,(41) and they work so well that taxable farm income is down to about $3 billions while the USDA estimates farm income at $14 billions.(42) I do not think that AGI will do. It is not just farming. Property is the paramount tax shelter. How does it cover thee? Let me count the ways. There is
At the same time, property is a large source of income that is not counted in AGI. Unrealized accruals and imputed income are the most obvious, and each is a huge item. Thus the ownership of property tends on a large scale to reduce AGI and increase real income. When we rank by AGI, property owners move into lower brackets than they belong; non-owners move into higher brackets. Property tax payments move into the lower brackets, pre-ordaining a finding of regressivity which is totally illusory. At least two studies have sought to correct for the Reagan Effect. Both corrected only partially, and with spectacular results. ... Another common method is to define property tax payments as only the net burden after deducting payments from taxable income. This is to impute a regressive feature of the income tax to the property tax. That would be wrong at best, but more so when one is comparing the property tax with the income tax itself. If one does choose to evaluate the
two taxes jointly, he should note above all that the
Federal Government has moved far toward abandoning the
taxation of property income. That is the cumulative effect
of a hundred loopholes, available to property but not to
the poor stiff with his W-2 Form. Equity suggests that
state and local treasuries move in on this unpreempted tax
base. Read the whole
article Mason Gaffney: Sounding the Revenue Potential of Land: Fifteen Lost Elements ... The personal income tax base
includes income from land. That’s what the 16th
Amendment was all about.
A, Exempt wage and salary income
from the tax, then raise the rates. (Corporate
income is already net of payrolls, and we have taxed it
from 1909). Lindy Davies: Ownership and the
LawB. Remove capital income from the base. This is done by “expensing”: letting investors write off what they spend on new capital, at or near the time they do it. Read the whole article
President Bush's announcement of his vision for an
"ownership society" met with thunderous cheers at the
Republican Convention, and much eye-rolling elsewhere.
The Bush Administration would like to start by
encouraging private ownership of our retirement funds and
our health-care decisions. They want to get the heavy
hand of government out of such things and unleash the
tremendous efficiency of millions upon millions of
Self-Interested Individual Actors, the husky, brawling,
broad-shouldered capitalism that made this country great.
Prosperity depends on the security of private property
and the potency of individual initiative! This is the
self-evident truth that has been obscured by Hollywood
Socialists, Democratic Girlie-men and purveyors of the
Homosexual Agenda. Nic Tideman: Using Tax Policy to
Promote Urban Growth
We should realize, however, that this is hardly a new initiative. It is really just the latest wave of an argument that has raged throughout the history of the United States, about just what -- if anything -- and on what basis -- if any -- the government can require us to surrender what we possess. There are some people out there -- and actually a fair number, after all -- who don't view the Bush Administration's privatization proposals as extremist at all -- but, rather, too soft. ... Unfortunately, though, the law is not at all clear. Thomas Jefferson fudged the topic in the United States Declaration of Independence, inserting "the pursuit of happiness" where people expected the more loaded term "property". The Bill of Rights, however, is strong on property rights. It provides for security of "persons, houses, papers, and effects," that "private property shall not be taken for public use without just compensation" and that rights not specifically prohibited are reserved to the states or to the people. In fact, the US Constitution was so bullish on property that it provided for private property in human beings, a principle made explicit in Dred Scott vs. Sandford and many other cases. Slavery was made unconstitutional by means of the 13th Amendment in 1865. This, however, left much to be resolved, and the Congress had a very difficult job -- perhaps, in strictly logical terms, an impossible job -- in drafting Amendment number fourteen. ... The 14th amendment reaffirms the rights of life, liberty and property, and binds the states to the same due process and equal protection restrictions as the federal government. However, it places the Constitution's first limit on the right of property, stating that the United States or any state shall not pay "any claim for the loss or emancipation of any slave". This could be seen as somewhat fishy in terms of the Fifth Amendment. After all the 13th amendment had taken the slaveholders' property three years before. Had not the Supreme Court ruled that slaves were property and had to be returned to their owners, even if they escaped to non-slaveholding states? Although it would have been impracticable (to say the least) to enforce the Takings Clause to the tune of the market value of some four million human beings, that was what the Constitution required the government to do. ... The next amendment to the Constitution following the Reconstruction Amendments was another milestone in the debate over property rights. The 16th Amendment, ratified in 1913, allows Congress to “lay and collect taxes on incomes, from whatever source derived” -- contravening the restriction of this practice that had been laid out in Article I. The “from whatever source derived” part has been making people scream bloody murder ever since. ... The original advocates of the income tax (many of them Single Taxers) sought to tax accumulation, not industry and initiative. They saw that the massive concentration of wealth among a privileged few was harmful to the nation, and they persuaded the states to accept a progressive tax that would compel robber barons to pay for public goods while letting entrepreneurs gain from their contributions to overall prosperity. And yet, over the years, a tax on income “from whatever source derived” came, one loophole at a time, to be a tax on exactly those productive, hardworking, middle-class people that it was designed to help. ... In most people's minds, after all, land is the most solid and important kind of property; in fact, the word "property" in general conversation most often means "land". However, it has long been recognized that sometimes privately-held land must be taken for public purposes. The principle of eminent domain is not (particularly) controversial. If the state wants to put a highway through your house, it must pay you the fair market value of your property. ... This decision was important because it extended the Takings doctrine beyond physical seizure to the taking of value -- but it was also relatively uncontroversial in that the state legislature had removed all of the parcel's market value. ... If government were to be held liable for every single action that took away a portion of real estate value, it could scarcely do anything at all. That might be how some of the most strident militia-folk would like it. However, it would certainly not suit real estate owners in general -- who, while they might not enjoy paying for government, do benefit from the things that government does. What the property-rights folks are forgetting (or disregarding) is that if a piece of land has a market value, that means that the net benefits conferred upon it by the community (which includes the government) are greater than the net costs. Location value is far and away the most important component of land value -- and location value is almost entirely the result of services and infrastructure that the government provides. ... It's no accident that the issue of "regulatory takings" is such a stew of contradictions. Indeed, the terms of the argument deny the possibility of coherence (in much the same way as they did in 1868). Land is not the fruit of human labor, and its value is not the result of any actions taken by its owner. Therefore, private property in land is an entirely different sort of phenomenon than private property in the products of labor -- and as long as the law fails to recognize this fact, it cannot hope to make sense of the issue of "regulatory takings". ... It could be suggested that "the conditions of the grant" could, without doing any violence to the secure right of private property, require the payment to the community of the land's rental value, to cover the cost of the community's expenses which, it turn, provide the land's value in the first place. That would, of course, require a clearer definition of the moral basis of property that the United States has ever been able to come to. Yet -- think of it for a moment -- what would have happened if the original Bill of Rights had articulated the individual's absolute right to property only in the products of labor -- and the community's right to the community-created value of the land? It would have saved us an awful lot of trouble. True, the "slavery" states would have balked at joining the union under those rules. But under them, the nation would have been so prosperous that they would quite soon have seen the advantage of joining. We would have avoided the Civil War, and probably even World War I -- it is dazzling to think about how different -- and vastly better -- our history would have been, had the Framers taken the brave step of setting forth the moral basis of property along these lines. It's interesting that we use the word "own" to mean two different things: the sense of possession, and the sense of personal acknowledgment, as in "owning up" to one's responsibilities. The relationship between the two was once closer than it now seems to be; the word "ought" is an archaic past participle of "owe". As we consider how to arrange our "ownership society", we'd do well to remember what we "ought" -- and bring the two senses of the word back together. Read the whole article
The efficiency that is entailed in using the rent
of land to finance public activities applies to certain
other sources of public revenue as well:
1. Charges on any publicly granted privileges, such as the exclusive right to use a portion of the frequency spectrum for radio and TV broadcasts. All of the above taxes are positively beneficial and should be collected even if the revenue is not needed for public purposes. Any excess can be returned to the population on an equal per capita basis. If these attractive sources of revenue do not suffice to finance necessary public expenditures, then the least damaging additional tax would probably be a "poll tax," a uniform charge on all residents. If some residents are regarded to be incapable of paying such a tax, then the next most efficient tax is a proportional tax on income up to some specified amount. Then there is no disincentive effect for all persons who reach the tax limit. The next most efficient tax is a proportional tax on all income. It is important not to tax the
profits of corporations.
Capital moves from where it is taxed to where it is not,
until the same rate of return is earned everywhere. If
the city refrains from taxing corporations they will
invest more in St. Petersburg. Wages will be higher, and
the rent of land, collected by the government, will be
higher. The least damaging tax on corporations is one
that provides a complete write-off of investments, with a
carry-over of tax credits to future years. Such a tax has
the effect of making the government a partner in all new
investments. With such a tax the government provides,
through tax credits, the same share of costs that it
later receives in revenues. However, the tax does
diminish the incentive for entrepreneurial activity, and
it raises no revenue when investment is expanding
rapidly. Furthermore, the efficiency of such a tax
requires that everyone believe that the tax rate will
never change. Thus it is best not to tax the profits of
corporations at all. If the people of St. Petersburg want
to share in the profits of corporations, then they should
invest directly in the corporations, either privately or
publicly. The residents of St. Petersburg would be best
served by refraining from taxing the profits of
corporations. Creating a place where
profits are not taxed can be expected to attract so much
capital that the resulting rises in wages and in
government-collected rents will more than offset what
might have been collected by taxing
profits....Read
the whole
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