tax models

[Fred Foldvary]

On Tue, 30 May 2000, Francois-Rene Rideau wrote:

> >> I think that Bastiat's chapter of the Economic Harmonies on Value
> >> is great, as it shows that Value is born in human work,
> >> and that gift of natures count nothing in it,
> >> except as an initial reward for people discovering new techniques.
> 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.
 
> >> my main contention
> >> about the physiocratic conception of riches
> >> is that it is impossible for an external observer to separate
> >> the part of nature from the part of men, in a way that be both
> >> just and applicable through law.
> >
> 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.
 
> >> 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.

> 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.

> 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.

> 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.

> 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.
 
> 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.
 
> 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.
 
> 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?
 
> 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.

> > 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.

> 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.

> I'd understand it much better if you made it a tax on land itself.

I don't know what "tax on land itself" means.  If you mean a tax according
to area, that's an unsound idea, since any tax greater than the economic
rent imposes on the activity, labor, and capital goods on the site.

Fred Foldvary