An exploration of the direction of taxation reform by James Robertson.
One of the aims of the P2P Foundation is to integrate various proposals for social change, under the summary phrase of "for a peer to peer civilization within a reformed market and a reformed state". What we envisage is that while the core of the economy will be based on the Commons and Peer Production, there will be vibrant (non-capitalist?) markets that is informed by peer arbitration, and a state which is similarly informed by stakeholder arbitration. So far, we have paid attention to Monetary Reform and the Basic Income, but we have ignored the important issue of taxation.
We are indebted to James Robertson for the following introduction. All quotes (somewhat adapted for readability in our own context) are from http://www.jamesrobertson.com/news-jul05.htm
What kind of Tax Reform
"In a long-term programme of economic reform:
1. people would not be taxed on the values they add by their skill, enterprise and work, but on the values they subtract by their use or monopolisation of natural and other common resources, and
2. all citizens would be entitled to share in the revenue."
The Pathology of Existing Taxation
"The effects of existing tax policies are
- to privatise social income (by failing to tax the profits made by people and businesses from the rising value of common resources like land), and
- to socialise private income (by taxing earnings from work, skill, enterprise and productive investment);
- this inevitably biases banks and other lending institutions towards lending for investment in existing assets like land and against lending for investment in productive and creative activities; and
- understanding these effects must underpin new policies on taxation and monetary control to deal with the cycles of boom and slump, to solve the recurring problem of rising house prices, to finance public investment in infrastructure like hospitals, schools and transport, and generally to move towards a more efficient and socially just economy.
...So: we have a pathology of a tax system which encourages fluctuating land values and house prices which cause booms and busts. (While there is also) the pathology of a way of creating new money which, by encouraging lending for the purchase of assets like land and housing instead of investment in productive activities, also contributes to booms and busts.
A Proposed Solution
We need to seriously study of the links and interactions between proposals for dealing with these two pathologies –
(1) by replacing taxes on productive activities with taxes on the value of land (and other common resources), and
(2) by transferring the creation of money from commercial banks to the state.
Support for both of these is growing, but so far separately among two different sets of academics, professionals and activists. The two approaches have much in common.
- Both will help to smooth out the peaks and troughs of economic cycles due to house price booms and busts, and banking booms and busts. When land values are taxed, continual rises in the capital value of land - that now encourage banks to keep the vicious spiral going by offering bigger and bigger loans for land and housing purchases – will be reduced. When banks are no longer allowed to create new money, money will no longer flow immediately at birth into speculative investment in rising land and house prices.
- Both will make it possible to reduce distortionary taxes that now damage the economy, replacing them by public revenue collected in one case from the society-created value of land and and in the other from the value of creating the public money supply.
- Both will distribute more fairly the publicly created value of resources that should be shared in common, and remove the ‘free lunches’ now enjoyed by the landowners and banks, business corporations and rich individuals, who are now allowed to 'enclose' the value of those resources for private profit.
- Both will open up opportunities for enterprise and work to people now excluded from them.
- Both will discourage environmentally damaging activities, or at least stop encouraging them; and
- Both will make the tax system and the monetary system more transparent, allowing the electorate, politicians, economists and other professionals of many kinds to see more clearly how these systems work and how to improve them."