Posted by: cjenscook | 04/16/2009

Tax Privilege, not People or…..the Tragedy of the Commons

Times must be changing with the FT publishing letters like this one of mine today.

FT.com / Comment / Letters – Tax the privileged and reduce the deadweight costs

From Mr Chris Cook.

Sir, I am sure British correspondents will also be pointing out that it is not just the US tax code that is broken (“Mending America’s broken tax code”, Editorial, April 14), but this misses a deeper point.

The toxic combination of compound interest on debt and private property in land has once again, as it has since Babylonian times, concentrated wealth to an unsustainable extent in the hands of relatively few. The problem governments face is not the shortage of credit or money – that can be printed ad lib – but a shortage of the creditworthy. What is now needed is in fact systemic fiscal reform, and in particular a transition from taxes on earned income and corporate profits to taxes on privilege.

First, as advocated by the great US political economist, Henry George (and your own Martin Wolf and Samuel Brittan), a levy on land rental values, which is a tax on the privilege of exclusive right of occupation of the commons of land. Second, a levy on carbon use, and on other non-renewables; and finally a levy on investors’ privilege of limited liability through a tax on the gross revenues of corporations.

These levies are simple, fair, pretty much unavoidable, and likely to lead to massive reductions in deadweight costs in public and private sectors.

Chris Cook

Old habits die hard, though for the  mainstream media…..

First, the title, which was not mine,  refers to deadweight costs – which I felt I had to throw in as bait alongside references to FT writers …… :-)

Second, the letters editor rang me to ask what exactly I meant by “Commons”?  I explained that this is a word that has been around for some time, and that many would recognise it….

AG and I couldn’t stop laughing for 10 minutes – it just about summed up how we have all got into this mess…..

Seriously, though, there is zero chance of such taxes ever being implemented.  However, we advocate that  direct (Peer to Peer) investment should be made in land rentals and energy value where the productive assets are held by (say) municipalities as custodians. In that case, the community’s share of the revenues is equivalent to a tax.

Where credit is created  within a Guarantee Society framework, again Peer to Peer, then the payments made by sellers and buyers in respect of the guarantee of trade credit will have the same economic effect on those being financed as a limited liability tax would – it’s just looking at it from the other end of the telescope.

Both a Limited Liability Tax and a Guarantee Society have the effect of monetising Knowledge Value. The difference is that the former involves the State and the banking system as value-extracting intermediaries while the latter either does not involve the State or perhaps could rather be seen as a new form of networked participative State?

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