Re: Land, Labour and Capital Taxation....

From: Igor (jjweatherby_at_houston.rr.com)
Date: 12/16/04 

Date: Thu, 16 Dec 2004 07:22:21 GMT

The Trucker wrote:

>>BASED ON BUT NOT ENTIRELY. ECONOMIC RENT IS ONLY PART OF THE VALUE.
>>Market value will include improvements and things that do not
>>intrinsicly effect production like distance from roads, railroads, or
>>population centers. These things affect unimproved MARKET VALUES but
>>have NOTHING TO DO WITH ECONOMIC RENT.
>
>
> That terminology thing again.... The distance from roads, etc. most
> certainly will effect production.
>

Yes but this are not an intinsic value they are caused by decisions on
improvement.

>>I am not against a land tax. If you have been reading what I wrote you
>>will see this. I am pointing out we will not get the perfect result
>>George hypothsized. Would it be better than the current system? Very
>>likely. But, it can not be the perfect system you have concocted. To get
>>it to texbook Georgian standards would be EXTEREMELY COSTLY. This tax is
>>going to have a high administrative burden. You have to have a large
>>bureaucy to calculate and track values much larger than the IRS.
>
>
> This speculation about "administrative burden" is quite wrong IMHO.
> It is because you refuse to use free market value to do the work.
>

The problem is that market prices are driven by more than economic rent.
Economic rent that George and Ricardo refer to is not market rent. The
theory is the best land is settled first. This means later population is
driven to less productive land. Economic rent refers to the difference
in productivity from the most productive land to the leat productive.
Those who are settling less productive land will pay to use the best
land. Market rent includes returns to capital improvements. A road near
the land is a capital improvement. A building already on the land is a
capital improvement. The problem is seperating this INTRINISIC rent from
   returns to capital improvements. What the market decides tenants will
pay is dependent on more than Economic rent. If you goal is to eliminate
economic rent you have to seperate these out. Some parcels will yield 0
economic rent and SHOULD HAVE 0 tax because it is not rent that is
taxed. It is the market price of unimproved land. So taxing value only
indirectly taxes economic rent. Any value tax on 0 rent land will be >
rents. This means decisions about future capital improvements will be
distrorted.

So a flat tax on value will still be distortive. Will it be less
distortive than a capital gains tax? Almost certainly. Will it be less
distortive than a labor tax? Maybe it depends on what you believe the
elasticity of labor supply is. I think it likely would be less
distortive. However, it still is not without distortion unless the
Economic rent on each land can be accurately calculated and the land
value tax set differently on each piece. Essentially the fact that some
land has 0 economic rents means some land should not be taxed at all.
Lands with higher rents may need higher tax rates. Taxing X% of value
does not mean taxing X% rent. It does lower rent but one can not assume
a 10% value tax will tax rents at 10%. To eliminate rents we must
measure true economic rent and not market rent. Different tax rates will
need to be set for at least some parcels to ensure that the tax does not
exceed the rent.

>>LEARN WHAT ECONOMIC RENT MEANS FOR THE LAST TIME THE MARKET DOES NOT
>>CALCULATE ECONOMIC RENT. THE MARKET HAS NOTHING TO DO WITH ECONOMIC
>>RENT. ECONOMIC RENT IS DETERMINED BY INTRINSIC FACTORS TO THE LAND NOT
>>MARKET FORCES, NOT IMPROVEMENTS, NOT ANYTHING ELSE. A parcel of land in
>>the valley gains economic rent SOLELY because it is more prodcutive than
>>a rocky boulder strewn slope on a mountain. THIS HAS NOTHING TO DO WITH
>>MARKETS OR ANYTHING ELSE ONLY THE ENDOWMENT NATURE HAS GIVEN THE LAND.
>>MARKETS DO NOT DETERMINE ECONOMIC RENT.
>
>
> Markets determine the AMOUNT of rent. What will the user of the land
> pay for the use of the land?

This includes more than just the intrinsic value. It includes returns to
capital. It is determined by expectations of future revenue that can be
gained from improving the land as well as the fact that the piece of
land is naturally more productive than another. You must seperate the
two factors. Tax pure economic rent is efficent. Taxing improvements is
distortive.

> Whoever bids the most will get to use
> the land. Why is this concept so difficult for you? You think I need
> you to TELL me how much to bid?
>

No the concept is not difficult it is lacking. The final bid is
determined by returns to capital or expected returns to capital as well
as economic rent. A piece of land that is less productive naturally but
has twice the capital improvements can rent for more in the market than
the piece of land that is naturally more productive and has less
capital. However, the economic rent to the less developed land is higher.

>
>
> How much will you pay for exclusive use of this site? It may be because
> it makes more corn or because it is next to a rail line to ship the
> corn, or because there is more rain here, or, or, or. It all gets
> taken care of by the free market.
>

Right but the problem is that people can determine whether or not to
build a rail line they can not determine how much corn will be yielded
given X capital, Y labor, and Z raw materials. Taxing how much more corn
this piece of land will yield than a piece of land with lower quality
soil does not change the decision of how much corn to produce on each
piece of land, unless you tax in way to where the less productive land
actually yields higher profits but you taxed the more productive land
too heavily. Taxing the increase in value or rent due to the building of
the railroad DOES discourage the building of the railroad or the
mainatenance of the railroad.

The farmer can not change the natural productivity of the tax so
therefore he can not avoid a tax on intrinsic value. His decisions about
production and capital improvements are the same with or without the
tax. He just gets less profit with the tax. The farmer can decide if he
wants to be a railroad near. He can tell the railroad I will not use
your rail if the tax is sufficently high. In this case no close railroad
would mean lower taxes. It may be that the shipping cost to get to a
further railhead is less than what the tax increase would be from the
railroad moving in. The value of the land the rail is on is also
dependent on capital improvements on nearby farms. The same land will
get higher returns if they are more customers near. So as farms increase
taxes on the rail increase. The tax means less rail provided, or fewer
trains, than would be if there were no tax. The company can avoid the
tax by not expanding the rail. I am not saying it would put rail
production to a halt but it would affect how much is allocated and
distort the decision because the return to capital would be lower.

>>
>>I am very familar with high school mathematics to understand what I AM
>>SAYING YOU HAVE TO KNOW WHAT ECONOMIC RENT MEANS. If you understand
>>that then the rest of the argument falls into place. If you tax 10% of
>>unimproved value then land with NO rent will STILL BE TAXED.
>
>
> 10% of zero will be zero. -- no tax
>

No because it is not rent that is taxed it is the land value. A piece of
land with 0 rent will have a selling price in the market above zero, it
may be small but it will be zero. If no other land is available someone
would be willing to buy the land. So if the land sells for $10 and
yeilds zero economic rent then $1 > 0 rent.

>
>>THE
>>PERCENTAGE OF RENT TAXATION THEREFORE APPROACHES INFINITY. High rent
>>land ECONOMICS RENTS will be taxed at a rate much less than approaching
>>infinity.
>
>
> Progressive taxation of land is not necessary. Progressive income tax
> is necessary because income tax is not a tax on rent but at the higher
> incomes.
>

Progressive income tax is not necessary. There is no necessity to it.
Some people feel progressive income taxes are more fair. They are
actually more distorting than flat income taxes but on the margin they
give a big disincentive. It is very possible someone would turn down a
$26,000 a year job because it puts them in a higher tax bracket. Because
the jump in tax rates are EXTERMELY steep for low income levels, $24,000
a year will yeild more take home pay than $26,000 a year. This is due
solely to progressive taxes and the fact that you raise now causes ALL
of your salary to be taxed at higher rate.

This is not distortive to the capital and labor decision if the tax is
on unimproved value of land. It makes no difference as to how the
capitalist will develop the land. IT IS DISTORTIVE TO DECISION TO BUY
LAND. George argues that although this means the LAND MARKET is
ineficent the inefficency is an improvement because the deadweight is
APPLIED to unproductive speculation. So buyers and sellers lose surplus
but George argues those losing the surplus are those not using the land
effectively. A progressive tax on land would be necessary to ensure that
low rent land is not taxed at rate > rents, we are taxing selling price
NOT rent.

>
>>>>To achieve George's idea fully
>>>>the tax code becomes complex and could be a beauracratic mess rife with
>>>>special interest lobbying to make sure their land is calculated to be
>>>>low rent.
>>>
>>>
>>>No, in fact the exact opposite is the case.
>>>
>>>As a general rule, if you just take the opposite of whatever Igor
>>>claims, you will have the truth.
>>>
>>
>>In Roy's bizarro world where the terms are what he wants them to be.
>
>
> Roy seems to have the same understanding of these terms as most of the
> rest of us. That normally means that the lone dissenter is in error.
> But maybe not. Did you get your definitions from George Bush, or
> Ashcroft, or direct from God?
>

RICARDO AND HENRY GEORGE'S WORK GIVE THE DEFINITION. To understand what
GEORGE IS SAYING YOU HAVE TO USE HIS DEFINITION OF RENT. MY DEFINITION
IS THE DEFINITION USED BY RICARDO AND GEORGE. THIS IS WHAT GEORGE WAS
TALKING ABOUT. To see an explanation of the classical theory of rent go
to http://www.henrygeorge.org/rent1.htm. The link and definitions are
provided by the Henry George foundation not someone who has no training
in economics. This is an excelent explanation of rent and how the
natural value gives extra production that owners do not have to work for.

Sorry the link I gave explains the concept of rent a simple definition
of rent as Ricardo and George say it is given at
http://www.henrygeorge.org/def2.htm . Again this is from the Henry
George foundation that an institute devoted to the schoraly pursuit of
George's work not someone posting on sci.econ who has NO economic training.

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