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December 03, 2005

Georgism Returns!

I was reading through this Guardian piece on how we need to tear up the tax system and start again and by about para 5 was wondering when he would mention Henry George. Para 12 as it happens.

There’s a couple of problems with the idea. Perhaps not problems as such but things that we need to note. The basic idea, that instead of taxing income (or anything else actually, in the original version of the idea) we should tax Ricardian land rents (and these are not simply land but returns to all natural resources. The auction for the 3G phone licences was very much this type of thing), preferably at 100%.

The first is that most economists (up to and including St Milt) would agree that this is the least distorting form of taxation possible. Seriously, all agree it’s a good idea.

Secondly, the idea is rather stuck in the 19th century.

If access to the land and natural resources upon which economic activity depends is concentrated in the hands of the few,


That’s something of a problem. It isn’t really true any more that economic activity depends upon land and natural resources. Well, sorry, of course it does but not in the same way as back then. With an economy which is 70/80% services we are in a very different position than when it was 50% agriculture, 40% manufacturing and 10% services.

The third is that those Ricardian land rents which we’re going to tax at 100% are, according at least to one dimly remembered estimate, 15-20% of the economy. In George’s idea it is quite clear that this will be the only tax. It replaces all of the others.

We thus need to work out how to manage Government expenditure down from the 45% of the economy it is to the 20% (say) that we’re going to allow it under the new regime. I’m quite happy with this, of course, a bonfire of the bureaucrats, but I think you will agree that it’s likely to produce the odd political problem?

December 3, 2005 in Economics | Permalink

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Comments

You make some good points. A couple of points of my own:

1. Only a very few individuals these days still cling to the idea of LVT being a Single Tax. This sort of arch-reductionism was very much of its time.

2. In my view the importance of land is very much underestimated, both by economists in general and in your post specifically. Many services are very much location-specific: schools and hospitals to give two very good examples. Your proximity to a good shopping centre very much affects the value of your house, while your proximity to a prison diminishes it. The difference is that in the case of agriculture, the importance of land was blindingly obvious, while in the case of many services the importance of land is simply overlooked.

Posted by: James Graham | Dec 3, 2005 2:55:10 PM