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We’re not all in this together: Wealth taxes vs LVT Point A

“Nature would prefer not to sell herself, but if forced to it by growth, would at least like to divide equally among her children the revenue from the forced sale of her previous gifts.” — Herman Daly

Life’s not fair, but taxes should be. Henry George was livid that labourers and capitalists were rewarded only for their work while landowners received the unearned increment even as they slept. He was flabbergasted that every newborn wasn’t automatically entitled to their portion of the revenue of global commons. If we were all in this together, we would receive an equal share of the bounty of nature as birthright.

We were all in this together for several million years, according to Fred Harrison. In “We Are Rent,” he suggests that after prehistoric humans had satisfied their immediate needs they would work a little extra developing new techniques and technologies which were immediately “pooled for the common good”. But rent sharing ended during the industrial revolution when the landowning class devised the means to commandeer the economic rent for their personal enrichment.

This unfairness pioneered by these 19th century landowners continues to this day. If, like me, you are a mortgage-free home or business owner, you unfairly benefit from what we all learn to condemn by reading Charles Dickens. Landowners live essentially tax free since their annual land value rise reimburses most of their state and federal taxes. (Landowners must pay municipal taxes, but they are a fee for service, not a tax.)

Landowners are on easy street courtesy of non-landowners. Renters help pay off landowners’ mortgages and then contribute to building their equity. Land values rise with the market leaving those who rent further and further behind. When lease-holders compare their stagnant equity to landowners, they know we are all not in this together.

Most millionaires don’t work for a living. They become rich by securing a monopoly over some aspect of the commons: they get land rezoned, they purchase resource monopolies, or they purchase patents over a scalable technology or pharmaceutical product.

Land and resource owners accumulate wealth through privilege, not production, as if on permanent paid vacation. These people are rentiers, capturing unearned income that rightfully belongs to the community.

Land and finite resources have value because of the existence of the community. Because they are gifts of nature and their value is community-created, the value upkick belongs equally to all, not exclusively to the present owner.

This wrong can be righted, but as Fred Foldvary explains in his counterpoint article, wealth taxes are wrongheaded. Attempting to tax wealth invites evasion and capital flight. Gérard Depardieu is infamous for renouncing his French citizenship and moving to Russia to avoid taxes.

Depardieu’s problem was that wealth taxes do not distinguish between earned and unearned income, between economic rent and the legitimate reward for brawn and brain. His actor’s income was earned by his talent and hard work and should not have been taxed.

On the other hand, had he polluted the air, had he reaped windfall profits by selling oil, a forest or a mineral, or pocketing the land rent on a vaste estate, then all of this income — above an operating profit — should have been socialized. These examples illustrate that the sources of economic rent are earth-bound and cannot be offshored or evaded.

Economic rent is variously called windfall profits, unearned income, the unearned increment, super profits, royalties, capital gains, birthright, or even luck. It is the difference between a fair profit and a windfall profit. It exists because of the hard work and ingenuity of the community and should therefore accrue back to the community. Economic rent captured by governments is therefore not a wealth tax.

At the same time, people will justifiably begrudge that income gained through work, investment, innovation or value-added should stay, untaxed, with the person or business that earned it.

Governments around the world are finally beginning to collect some of the rent from large internet platforms. Australia, first to bell the cat, has succeeded in convincing Facebook and Google to accept charges to compensate local media companies for the use of news stories. Countries all over the world have plans to follow suit.

If we were in this together the wealth gap would shrink, a basic income would eliminate poverty, and no one would reap windfall profits by destroying biodiversity or by contributing to climate chaos. The silver lining would be that everyone would benefit when entrepreneurialism and employment is no longer burdened by taxation.

Wealth taxes are self-defeating and should be avoided, but financing government programs by capturing economic rent is an enlightened policy that acknowledges that those who use or abuse the gifts of nature must compensate the greater community for the privilege.

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