Want a real overhaul of the tax code? Here's an elegant way to reduce inequality and mitigate poverty -- in one tax
Appealing to the overwhelming majority of Americans who believe the tax code is so complex that it needs “major changes or a complete overhaul,” Senate Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Committee Chairman Dave Camp, R-Mich., have adorably started a joint Twitter handle: @simplertaxes. The bipartisan love fest is no doubt a heartfelt effort, but not very convincing from men who acquired the fancy titles by opening and maintaining loopholes for the ownership class. Baucus’ hot-off-the-presses tax reform proposals predictably simplify the code very little.
At present, neither party advocates the tax code so elegant it can reduce inequality, mitigate poverty, stimulate productivity, prevent asset price bubbles, stem community-shredding gentrification and drain the distended Wall Street cabal of its ill-gotten gains – in just one tax.
Land value. If we want a real overhaul/simplification of the tax code, the way to do it is to tax land value. It might be the only tax we need. No sales tax. No income tax. No payroll tax to fill a Social Security trust fund. No corporate income tax that, as we can plainly see, offshores profits. No need to tax labor and industry at all. Just tax the stuff that humans had nothing to do with creating, and therefore have no basis to claim ownership over at all. You’ll find that almost all of it is “owned” by the fabled 1 percent.
And boy are they sucking a lot of money out of it. By far the most valuable asset form in the U.S. is real estate, and the majority of that is the value of the land, as distinct from the value of the human-made buildings. Economist Michael Hudson has assessed that the land value of New York City alone exceeds that of all of the plant and equipment in the entire country, combined. No one put any enterprise or cost into producing the land’s value – they simply bought it when it was cheap, sold it when it was dear, and waited for the check. “They” are the Finance, Insurance and Real Estate (FIRE) sector, and they capture 40 percent of the United States’ profits, despite the complete passivity of their profit-accumulation method.
Not only would a land value tax (LVT) drastically shrink that Wall Street bloat, it would have prevented the housing bubble in the first place. Land, after all, was the speculative commodity at play, not the houses themselves, which, as “Arrested Development” incisively suggested, were a bunch of crap. With an LVT, the cookie-cutter McMansions in suburban housing developments would only be worth the cost of their cheap paneling, artificial marble and the rest of it. Without one, they were wrongly assessed as being worth the value of the land they stood upon, which speculators bid up and up and up.
An LVT would stimulate urban property development without incurring the socially catastrophic ethnic displacement pattern we call “gentrification.” As that noted far-left rag the Economist notes, “Property developers … would be less inclined to hoard undeveloped land if they had to pay an annual levy on it.” Despite this, the new developments wouldn’t push rents up throughout the rest of the neighborhood, because the increased land value would be taxed. The rest of the apartment buildings in the area didn’t get any nicer. So why should they cost more? Urban land, scarce by definition, is very valuable. There is no reason to let a small group of rich landlords extract its value, when what created the value are parks, subways, local restaurants and other things the landlords didn’t provide.
Nothing could simplify and demystify the taxation experience for Americans like making sure that the vast majority of us who don’t own the resources, who don’t collect rent and capital gains, who have to work to get our paychecks, wouldn’t ever have to mark April 15 on the calendar again.
In contrast to its tiny tax base, the amount of revenue that can be raised by taxing the land is huge. Enough, for example, to support truly liberatory social spending, like a universal basic income, without risking inflation. Or the money could be devoted to starting a sovereign wealth fund to collectivize ownership claims on capital (the dividends to provide a UBI). Or it could go to local public banks capable of investing in the needs of their communities and regions.
If this sounds like it’s a little too far outside the box, the solution is to collapse the box. Capitalism requires pretending that individuals’ private ownership of the land, minerals, gases and oils that nature provided is not a completely ludicrous idea. And as long as our political parties are both capitalist parties, there is little hope for a land value tax. But the day is coming, and soon, when it will no longer be so.
More Jesse Myerson.