Harberger Taxation

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Matthew Prewitt:

"Harberger taxation (“HT”) is a property taxation scheme designed to weaken monopoly power and make markets more efficient. It has not been tried before. At its core:

It lets property holders self-assess their assets for taxation purposes, reporting those values to a public ledger; and also Requires property holders to sell (within a reasonable time) their assets (or tranches of their assets that they have defined) at the prices they report. Notice that these two features create opposite incentives. The “self-assessment” feature incentivizes under-assessment. And the “requirement-to-sell” feature incentivizes over-assessment.

One of the most important insights in Posner and Weyl’s book is this: If a Harberger tax on an asset were set precisely at the probability of that asset finding a buyer in a given period (the “turnover rate”), then the two opposite incentives would fall into perfect equipoise. Thus, property holders would be best served by truthfully reporting the exact prices for which they would be willing to sell their assets.

The clearest consequence of this scheme would be making it expensive to possess assets. Because people wouldn’t have as much of an incentive to hoard them, assets would flow more efficiently into the possession of those willing to pay the most for them at any point in time.

This might sound like it would favor the rich, but that is a misunderstanding, for two reasons. First, HT would function as a wealth tax, making it costly to own a lot of stuff, and reducing the returns to speculation. Second — and this is key — the huge revenue streams generated by HT could (and for reasons that will become clear, should) be distributed equally to everyone.

For those with little net worth, their distributions would cover the Harberger taxes on their assets, with plenty of room to spare. Thus, increasing asset values would be cause for common celebration, not division.

But most interestingly of all, HT would undermine monopolies. Owners of scarce, desirable assets would have to pay taxes on the true value of their monopolies, thus giving back to society the value of the inefficiency generated by their market power. In this way one of the key hindrances to economic growth might vanish."


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