tax models

Francois-Rene Rideau
Tue, 6 Jun 2000 14:08:49 +0200

>> Is Bastiat wrong, or am I misrepresenting his ideas?
> Bastiat is wrong.  Value is subjective and not based on "human work".
> People place value also on natural resources.

Uh? Maybe _you_ are misunderstanding his ideas.
His theory of value is definitely subjective;
yet it does somehow take into account human work,
in a very sensible and satisfying way (IMHO):
just not the "objective" human work actually spent _by the producer_
into manufacturing a good or providing a service,
but instead in the "subjective" human work potentially spent _by the consumer_
to achieve similar satisfaction through different means.
I think this way of putting things reconciles the tenets
of the usual subjective and objective theories of values:
value is subjective, yet it has objective roots,
is capped by objective limits, and is decreased
by technical progress, competition, etc.

>> It isn't done _by law_. Note that I said "applicable through law".
> But the separation of land value from improvement value is indeed applied
> and applicable through law, since in many jurisdiction, country real
> estate assessors separately assess the land and improvement values.  Many
> countries such as Denmark have also been doing it, and many cities
> world-wide exempt improvements from property taxes, only assessing land.
But then what do you count in the "land value"?
The value that the piece of land would have if suddenly whatever is built
on it was blasted off and the remaining rubbish taken away?
Even then, the piece of land is valuable through the proximity
of many services in the surroundings. A same-sized, same-soiled, etc,
spot of land is worth much more in a big town than lost in the middle
of a desert. Should you wash away the whole town instead of just the spot
of land, it wouldn't be worth as much.

>>>> For instance, If I find out in the nature a diamond (or a lost piece of
>>>> art);  should I be taxed according to its market value?
>> What about the diamond? Where is the fundamental difference?
> A diamond in the ground is part of land, and once extracted, it ceases to
> be land.
Ok, so if the diamond was part of a forgotten treasure,
that was unknown at previous taxation date, and no more existing
at next taxation date, it won't be taxed?
What about such ephemeral natural ressources, or highly volatile ones
(some mineral or whatever whose value changes a lot)?

>> Will you tax the miner more than the artist?
> The artist should not be taxed at all.  The miner would pay the economic
> rent on the natural resource extraced.
Isn't inspiration a natural resource?
As a software artist, I can assure you that indeed, good inspiration
is a precious, scarce, natural resource.
It requires no less and no more work to transform this resource
into useful services to the community than it takes the miner
to transform ore into useful items.

>> How is that more just or more economically efficient?
> The rent by defintion is that part of income not needed to put that factor
> into production or its most productive use.
Looks like any outcome-independent taxation would do by this definition;
for instance, a per-capita tax, or a tax lottery.
Since taxes are to finance government, you need to justify
how the distribution of taxes matches the distribution
of services rendered by government.

>> Will you reimburse the tax that was levied when the market value was higher?
>> Or will you re-tax when the market value increases?
> A tax on rent is periodic, levied every year or quarter year or month.
> Ideally real estate should be assessed at least yearly to keep the
> asssessments current to market value.
You don't answer the question, in presence of real estate
with highly volatile value.
What if I discover some ore under my otherwise worthless piece of land,
I sell it at a high price to some investor, and two years afterwards,
the investor realizes that quality and volume of the ore was overevaluated,
or that because of new techniques, the supply for such mineral
has boomed or the demand was crushed?
Will you reimburse taxes on previously overvalued estate?
Will you retax previously undervalued estate?
Will you punish those whose estate is overvalued at the wrong date,
and encourage people whose estate is undervalued at the right date?

>> The market value accounts for the part of human work as well as
>> for the part of nature. Some same-sized chunks of land may be worth
>> one because of its rich soil, the other one because of the mansion built
>> on part of its surface.
> The mansion would be exempt, since it is an improvement, not land.
But the value of rest of the land is also modified by the mansion.
Least there is an atomic war once in a while, I fail to see
how there can be market evaluation of unimproved land.
_All_ land is somehow improved, directly or indirectly.
Or maybe you do want to include the "proximity value"
in the "unimproved value" of the land.
After all, even man-untouched land has proximity to forest, rivers,
sea, mountains, hinterground, farmable soil, mines, etc;
it has susceptibility of fire, drought, flood, earthquake,
and various natural disasters.
But then, transforming a spot in the desert into Las Vegas
is no doubt human improvement.
Maybe what you want to distinguish is "internal improvement"
as opposed to "external improvement".

>> You still need tax audits, to determine if declared soil value
>> is actual market value (and for some spots of land, the market is not
>> fluid enough to allow for easy evaluation of market value;
> The estimation of the site value is not an audit.  An audit is an
> examination of accounting records and receipts.  With land, the governing
> agency just assesses its value, which does not require entry into the
> premises.

Ok, so much for my bad wording. Replace audit by assessment.

>> Now what if one country (e.g. Russia) has plentiful of them, while the
>> other (some random rock in the pacific) has little, yet both have a lot
>> of inhabitants, and accordingly much government spending?  Will you have
>> huge taxes for the population?
> The country with many inhabitants will either have a large amount of
> territory or else high density, and in either case plenty of site value
> for public revenue.  You would need to explain the rock in the Pacific,
> i.e. the population, industry, etc.
So you admit that your distribution of taxes according to land ownership
is not related to an intrinsic "merit to be taxed", but is just a
completely arbitrary choice, that you latter scale with an ad-hoc factor
so as to account for taxes.

>> Why would the community have a particular right on land?
> They only have a right to the rent.  Why would anyone else have the right?
Indeed. Why would anyone have the right? That's a tough question.
In as much as the product of labor is obviously to be owned by its authors,
it isn't quite obvious how natural resources can be acquired and owned.
If I discover a new land, how much of it is mine?
As far as I can see? As far as I can farm?
As far as me and my employees can farm?
As far as me and my slaves can farm?
As far as I can conquer it from the natives?
As far as I can defend it from squatters?
As far as I can pledge the almighty king into granting me?
If lots of squatters come from the East, do they automatically form
a community with a right to the rent?

>> I don't buy this excuse. In your zero-tax system,
>> who'd pay how much for the services provided by government?
> It would all be done by contract.
And would these contracts magically match your land-distribution?
If they would, then I'm quite interested in learning how/why/foo.
If they wouldn't, then your tax distribution is unjust,
and should be revised to better match the way contracts would have
been passed in a zero-tax system.

>>> Pollution and land rent.
>> I don't think tax is the good reply to pollution;
>> it only gives a legal way to do something evil.
> But the pollution charge compensates society for the damage.
> The optimal amount of pollution is not zero.
The standard classical liberal solution to externalities
is to create property rights and thus internalize the costs/benefits.
In the case of pollution, the question is then to determine
who can claim initial ownership of how much natural resources...

>> As for land rent, what makes this particular transaction so magic?
> The fixed supply of land within a jurisdiction, and the fact that natural
> resources are prior to and apart from human action, hence having an
> economic rent that can be tapped and not impose an excess burden.
What about drinkable water? breathable air? fishable sea? wildlife?
What about minerals? oil? geothermal, wind, solar?
absence of various pollutions?
Won't your system be a big disincentive to growing crops,
because it demands a lot of highly taxed land, but less
of otherwise untaxed natural resources?
Won't poorly-improvable land become "hot potatoes" that owners are
desperately trying to give away, because they induce taxes without revenue?

[ François-René ÐVB Rideau | Reflection&Cybernethics | ]
[  TUNES project for a Free Reflective Computing System  |  ]
You don't test the validity of a theory by seeing that it says correct
things, but by seeing that it doesn't say incorrect things. What you test
by seeing that it does say correct _and previously unpredicted_ things,
is the interest of a theory you've tested to be valid.