tax models

[Fred Foldvary]

> From: Francois-Rene Rideau <fare@tunes.org>

> [Bastiat's] theory of value is definitely subjective;
> yet it does somehow take into account human work,
> in a very sensible and satisfying way (IMHO):

But does it account for subjectively valuing natural resources?

> 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.

The "objective" work spend by the producer is irrelevant to the consumer.
The buyer does take into account his opportunity cost, which is what you 
presumably mean by his "subjective" human work, but what the consumer
spends can also be gains derived from nature, not just work.

> 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.

I don't see the "objective roots".  The limits consist of the resources
available to a buyer.  That has nothing to do with any objective values.

Total subjective value is not decreased by technical progress.  What
progress does is to increase the supply of goods so that, with the buyer
already having more goods, the extra goods have either less marginal
utility, hence less marginal subjective value, or else the buyer gets a
larger consumer surplus.  Again, this has nothing to do with objective
values.
 
> 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?

Yes.

> Even then, the piece of land is valuable through the proximity
> of many services in the surroundings.

That value added is a return to capital goods, and not a natural land rent.

> > 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?

Correct.

> What about such ephemeral natural ressources, or highly volatile ones
> (some mineral or whatever whose value changes a lot)?

If the value fluctuates rapidly, then its market value would be known or
estimated with the same frequency, and the rent would be based on the
market value of the moment.
 
> > 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?

No.  Human action is non-natural.

> As a software artist, I can assure you that indeed, good inspiration
> is a precious, scarce, natural resource.

Why do you call it "natural"?  The only natural things you do are those you
don't do purposefully, such as sneezing and snoring.

> 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.

The miner's transformations are labor, which should not be taxed.
 
> > 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.

A per-capita or head tax does indeed not create an excess burden, but it
can become forced labor if it induces more labor than the worker would have
otherwise wanted to engage in.  That creates more production of goods, but
less well-being for these workers.

> Since taxes are to finance government, you need to justify
> how the distribution of taxes matches the distribution
> of services rendered by government.

Exactly so.  When government provides services, they become capitalized
into higher land values.  Taxing the land values returns those values
generated by the government services.  Indeed, if land rent or land value
is not taxed, the landowners get a subsidy, a forced transfer of wealth
from workers to landowners.
 
> >> 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.

The frequency of assessments should of course match the volatility.

> 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?

For material land, the tax is levied upon extraction as a one-time charge,
based on its economic rent.  This could be combined with ex-ante bidding
for extraction rights, as is done with off-shore oil leases by the
government.

> Will you reimburse taxes on previously overvalued estate?

No.  Usually, minerals or oil are sold soon after extraction, so the
problem does not usually arise.  If the miner wants to hold on to the
minerals, he can hedge in the futures market.

> Will you retax previously undervalued estate?

No.

> Will you punish those whose estate is overvalued at the wrong date,
> and encourage people whose estate is undervalued at the right date?

All assessments can be appealed, ultimately to juries.
 
> > 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.

Not usually in small plots.  But if the value of the site is modified, the
value added is a return to capital goods, and not taxed, since it is not
economic rent.

> Least there is an atomic war once in a while, I fail to see
> how there can be market evaluation of unimproved land.

The rent is set by the market, based ultimately on subjective valuations.

> Maybe what you want to distinguish is "internal improvement"
> as opposed to "external improvement".

No, but some ancient improvements whose creators and heirs are long gone
can be considered as having become land.
 
> > 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.

The intrinsic "merit to be taxed" consists of either the natural economic
rent or else the rental return to capital goods infrastructure and services
produced by government.  I don't see anything "ad hoc" about it.
 
> >> 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?

Generally, the value of urban land reflects the human activity on that
land, so the rental payments would match the generated rentals.  Whether
voluntary communities would share the natural rent would depend on their
ideology.

> What about drinkable water? breathable air? fishable sea? wildlife?

All are land, unless produced by human action (such as fish farms), in
which case they are capital goods.

> What about minerals? oil? geothermal, wind, solar?

land.

> absence of various pollutions?

land.

> 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?

No.  If you understand rent, then you understand that rent is what a tenant
bids with the expectation of making a normal accounting profit.  In a
competitive industry, the rent squeezes out economic profits but also in
the long run avoids economic losses.

> Won't poorly-improvable land become "hot potatoes" that owners are
> desperately trying to give away, because they induce taxes without
revenue?

Why would land with no revenue have a positive market rent?
 
Fred Foldvary