This essay proposes that most taxes as they presently exist in most countries should be abolished and replaced with a limited resources tax. There is no limit to our wealth so it should not be taxed. However, there is a limit to the amount of land we can own and the amount of fossil fuel that can be dug up. These things should be taxed.
Many people, when thinking about the future, seem to be filled with dread about having to return to the days of hair shirts and hours of hard labour in the fields just to survive. This absolutely does not have to be the case.
Pessimistic forecasts are frequently proven to be unfounded. The supply of metals is a good example. In the 1970's there was much talk about how soon we were going to run out of a long list of different metals and how the price would shoot up by the end of the century. What we saw was the opposite happen. Mining techniques developed, new ore bodies were found and the pessimists who had predicted high prices and shortages were proven wrong. An ore body is just a large mass of earth where a useful chemical has been concentrated by geological forces. When one ore body runs out another can always be found (except for fossil fuels). It might not be as good but as technology advances it becomes possible to exploit ever poorer resources. Soon we will be mining our rubbish dumps and the recycling of metals will approach 100%. It will take a technology push to get there but there is no fundamental reason it cannot be done.
A similar more recent example of undue pessimism was the Y2K bug. Governments around the world were misled into spending millions of pounds and dollars to warn people to update their computers to handle the year of the date with 4 figures instead of the 2 previously used. What a waste!
Today the popular pessimistic terms are things like "peak oil" and "limits to growth". Well peak oil need not be a problem if we install the replacement clean energy systems in time. As for "limits to growth"; there are none.
Whenever we experience a shortage it is because we have not made proper use of what we already have.
To have a great future we need to envisage it, imagine it, and plan it. Nothing happens without prior thought or planning. To build a house we have to think about it first. No one sees a pile of rocks and starts building a wall with them without first having at least a vague idea about what they want to create. Experience has shown over and over again that the better the planning process the fewer the problems with the construction process. The World's future is the same yet our newspapers and TV stations are filled with stories of war, natural disasters, crime and political corruption, as are many of our books and films. How can we have a great future when so few people are writing about how to do it?
This series of essays started by outlining the technical solutions, using conventional science, that would allow us to get all the energy we could want and still have pure air, free of global warming and pollution. These solutions require us to make some serious changes in order to fund their development. In subsequent essays I then explained why it is so important to make those changes. Below I outline some of the other practical steps that need to be taken. If enough of us talk about a better tax system we will eventually get it.
For a large society to try functioning without a government would be a very brave experiment. Small isolated populations can rule using the huge power of social conformity but this only works when everyone knows everyone else. In bigger populations more formal control is needed and this is essentially what government is. This governance needs funding and that is called tax. Taxes, or equivalent sorts of membership fee, are unavoidable because the government and the common services they provide take effort to run and that effort has to be rewarded.
How to raise those taxes will always be a major ongoing debate and all countries in the world are going to have to make some radical changes in the next few years. The global recession is going to make sure of that, but none that I am aware of have gone anywhere near far enough.
Most nations charge their citizens income tax. But have you ever wondered what right a government has to investigate how much you earn? As long as you are being honest what difference does it make to anyone else how much money you have? For instance, if a therapist treats large numbers of people and makes a good income from that why should they have to pay more taxes just because they are successful? The main excuse at the moment is that to make money we have to use up limited resources and that leaves less for other people, now, or in the future. Not true!
Land is maybe the best example of a limited resource. If we want to build a factory, school or house we need a piece of land to do it on. To have sufficient confidence that our investment is safe enough it is vital to have security of tenure on our chosen plot before we start building. The more secure that tenure is the more confidence we can have to build a better building and spend time improving it once built. (The lack of secure land tenure is possibly the most important reason a lot of Africa is so poor.) The issue relevant to taxation is that once we have tenure (or ownership) of land we can exclude the public from using it as their own. It seems fair to me that that right, or privilege, should be taxed.
Most nations already tax land ownership but most are doing it in a way that is not as fair as it could be. For instance the value of the house on the land makes no difference to anyone but the owner. The only difference to them is the value of the land. Having secured the tenure on the land it makes no difference to the rest of the nation how valuable a structure is erected on it. To be fair only the land value should be taxed.
Another example is the radio spectrum. There is a huge demand from radio stations, TV stations, mobile phone companies, radar installations, radio astronomers and a long list of other people who want a share of the spectrum. There is only so much space so when the G3 mobile phones wanted to use a section of the spectrum the European governments decided to auction off the space. The huge prices the mobile phone companies eventually paid took many by surprise. The sum was so large that the UK chancellor was able to reduce taxes a little. Even though I have shares in British Telecom and this auction was partly responsible for them loosing a lot of their value I think this was a good example of how to tax a limited resource.
Mining of minerals from the ground, and collection of fresh water are other cases of using a resource that rightfully belongs to everyone living now and in the future. Mining is about finding a patch of the earth where some material has been concentrated up to level where it is economically viable to dig it up. If there was a bigger tax on doing this industry would be given a bigger incentive to recycle.
Taking the specific example of iron used to make steel; Iron ore is in very simplistic terms a huge accumulation of rust. Large deposits are worth digging up because all the facilities necessary for turning it into steel can be built nearby and an ongoing industry can be sustained for many years. At the moment doing this has allowed us to produce very cheap steel. So cheap that it is not always worthwhile recycling redundant steel products. Once the big ore deposits are used up future generations will have to use the less convenient smaller or less pure deposits so it is only fair on them to tax present mining activity. Increased mining tax would increase the recycling percentage and the environment would benefit from the reduced primary metals extraction. Once the recycling rate is good the arguments about reducing consumption to save the environment go away.
The planet has enough of every metal to make anything we can reasonably imagine. Once pollution is taken out of the cycle of production, use, and disposal, then there is no limit to our economic prosperity.
Fossil fuels are different to metals because their supply is limited. There is no fundamentally good way to recycle them. Their use involves producing CO2 in such large quantities that it becomes a pollutant. It is essential that we tax their use increasingly heavily, both at the extraction stage, and at the point of use stage.
My definition of a pollutant is a chemical of any sort that is put into a place in sufficient amounts to damage life-forms in that place. Much of what we do today causes pollution but doing so should be taxed to increase the incentive to develop better systems.
By properly taxing limited resources the whole tax system could be dramatically simplified. Income tax and sales tax or VAT could be abolished. Carbon tax set at the proper level would provide the necessary incentive to stop global warming. The simplified tax system would greatly reduce the costs involved in tax collection which would save the government and its population lots of money. The barrier is that such a radical change scares most politicians witless and they fear that they might not get it quite right. Also, numerous vested interests would object to the short-term losses they might experience. The only way to create such a brave reform is for a large number of people to start talking about it and pushing for it.
As the danger of global warming is increasingly recognized debate has turned to how to limit CO2 emissions. Many existing systems and proposed new ones rely on setting a quota for CO2 production. Those who exceed their quota have to buy from someone who has not used theirs, or pay a fine. The trouble with this sort of system is that setting the quotas to the wrong level produces the wrong outcome. It is arrogant to assume we can calculate how much any particular quota should be. It would make it difficult to do financial planning because the price of buying or selling quotas could not be predicted.
A better system would be to tax CO2 production. The Stern review made a start at determining the value of reducing CO2 in the atmosphere. A global scientific study could be done every few years to assess the latest data and put an updated monetary value on the harm done to Earth by our CO2 production and set a tax according. Ultimately this should be a global tax because it is a global problem. However, it could be kick-started country by country acting alone and setting an example.
Examples around the world have already shown that it is much quicker and easier to introduce a carbon taxation system than it is to introduce a cap and trade system. The emission trading schemes that are presently favoured require industry to do a mass of work to determine their present carbon emissions and then to track them in the future. This is a vast amount of unnecessary work that is avoided with carbon taxes.
Another advantage of carbon tax is that each country can do its own thing. International agreements are very difficult and complex beasts. Every country has its own agenda. Each wants a carbon quota at a different level. A carbon tax that each country organises for itself would be so much easier to arrange than the quota type systems being discussed so much as we head towards Copenhagen in December 2009.
To regain (or achieve for the first time) the respect of their populations governments need to tax them fairly. That means taxing only things where one person or group has taken value from another. There is no limit to how many jobs there are. There is no limit to how much income a person can make. Governments therefore have no right to tax, or even know about, those things.
By taxing only limited resources the level of antagonism would drop, our work-load would decrease, and the economy would boom.
Radical change is always resisted particularly by those who would loose in the short-term. The tax reforms I am recommending would disrupt the comfortable wealth of a few, so resistance will be strong, but I challenge such people to suggest a fairer system. The precaution we should make is to phase the changes in slowly. But taking no action for too long will exclude that option because we would see such a serious financial collapse that radical and immediate tax reform would become essential.
The very rich pay very little tax because they use tax havens. There is presently much talk of forcing the countries with favourable tax rules to change their regulations. These countries are partially blamed for the credit crunch and the larger countries want to force them to cut their revenue. The trouble with that talk is that it is hypocritical. If a nation has a fair tax system based on charging for the use of limited resources then their citizens would not unfairly benefit from using havens.
Land value, deforestation and road tax.
Radio spectrum, and similar limit resources.
Pollution, fuel duty, rubbish disposal.
Mining or ore value tax, fresh water use.
Value added tax or sales tax.
Tax on property value where this value includes any man-made structures on the land.
Stamp duty or similar taxes based on the sale of property. People need every incentive to move to be close to their work to cut traffic and pollution. These taxes inhibit this.
Tax on savings interest.
Import and export duty.
Death duty or inheritance tax.
By cutting out the bad taxes we make tax collection far more efficient which would reduce the total amount of tax needed in the first place.
The most fundamental change we need to see is a global increase in honesty integrity and truthfulness. Without integrity any clever plan will eventually fail. With it any system would work.
There are large bodies of literature about land value tax and carbon tax. Both are good ideas but there have been difficulties implementing them. The common factor is that they tax a limited resource so maybe it will be easier if they are combined into a single taxation concept. This single taxation concept could replace all other taxes and greatly simplify the system. It would be much fairer than present systems. It would free people to expand their lives as much as they liked provided it was done ethically and safely. Instead of an increasingly complex raft of new legislation to save the environment a proper taxation system would solve all these issues automatically. People purchase the cheapest option. If things were taxed right the cheapest option would also be the most ecological and ethical. There will be problems and barriers with the transition from where we are to where we could be, but if enough people start imagining the ideal system, and talking about it, we will eventually get it. The short-term barriers to change are no excuse for not working towards a better system.
My final essay in the series is about bringing sense to the evolution vs creation debate. Without knowing our place in nature we cannot develop truly clean technology.
www.cooperativeindividualism.org/hardy_permaculture_and_globalisation.html talks about how the unfair system that predominates today is a major cause of poverty.
The following quote comes from From a Failed Growth Economy to a Steady-State Economy by Herman Daly.
"Stop treating the scarce as if it were non-scarce, but also stop treating the non-scarce as if it were scarce. Enclose the remaining commons of rival natural capital (e.g. atmosphere, electromagnetic spectrum, public lands) in public trusts, and price it by a cap-auction–trade system, or by taxes, while freeing from private enclosure and prices the non-rival commonwealth of knowledge and information. Knowledge, unlike throughput, is not divided in the sharing, but multiplied. Once knowledge exists, the opportunity cost of sharing it is zero and its allocative price should be zero. International development aid should more and more take the form of freely and actively shared knowledge, along with small grants, and less and less the form of large interest-bearing loans. Sharing knowledge costs little, does not create un-repayable debts, and it increases the productivity of the truly rival and scarce factors of production. Existing knowledge is the most important input to the production of new knowledge, and keeping it artificially scarce and expensive is perverse. "
Frank; I have to admit your tax proposal is a novel idea, but I didn't like it. It took me awhile to think about why. You focus on land. Land might be the source of wealth in third-world countries such as in Africa or India, but not so in the United States. Most wealth in this country derives from intellectual property. Two guys from Stanford developed an algorithm for ranking Web pages and Google was born. Should the billions be beyond the tax collector because no land was involved? How about the stock trader who buys 1000 shares at $11.22 and sells them 50 minutes later for $11.43? Is this activity taxable? Or the writer of novels or the author of a screenplay or a a musician who writes a song.
Reply; Because our present tax systems are so complex it is possible for the very rich to pay tax at a very low rate and it is rumoured some pay hardly any. They pay tax consultants ten of millions to save hundreds of millions in tax and the tax departments spend millions trying to get some of it back. A few tax consultants get rich while everyone else gets that bit less. It is a cycle that wastes effort on the wrong things and we should eliminate it and the way to do that is to make tax much easier and more transparent. Income can be hidden, if you have enough, and anyway, why should we care how much Google or the share traders or the authors make? What difference does their earning make to the rest of us? What happens is that people use their income to buy limited resources; like land. Buying land is the same as acquiring the right to control who comes onto that land so having that privilege should be taxed. Having an income does not deprive anyone else from having an income. There is no limit to how much money can be made so taxing income limits prosperity. Google, and other Americans, need land to put their houses and offices on just like Africans and Indians.
Frank; Even the price of oil has little to do with the land that it comes from. Oil in the Middle East can be pumped for between $2 and $5 a barrel. Americans valued that oil at $150 a barrel in 2008. What should be taxed, the cost or the value? Price can be anywhere in between.
Reply; Extracting oil has several harmful consequences that should be limited using taxes. It destroys a resource that civilisations in the far distant future might need more than us. It also causes pollution. It is already taxed but the levels need to be increased to a level that honestly reflects the damage it causes. There is much literature about land tax, but as you say, the price of oil has little to do with the value of the land. That is why I propose a limited resources tax instead, charged by the country of origin and again by the country where it is used. It gets to the core of the motivation that drives the land value tax advocates.
Frank; You don't like government intruding on a private individual's earnings. In America there have been many billion dollar frauds in the last decade. Citizens form governments to protect themselves against evil, both foreign and domestic. I will let the government know what I earned and pay tax on it as long as government shuts down criminal entities such as Enron and Worldcom, and taxes all income fairly.
Reply; Tax and crime are different things. The simplified limited resources tax I propose would free up tax inspectors to investigate financial crime. The tax department not bothering to investigate our income is not the same as permitting the police full access to all our financial dealings if the reasons for doing that investigation can be justified.
Frank; Above some high threshold, additional income doesn't bring happiness. It only allows these very rich individuals to brag to each other about who earns the most. Only relative income counts.
Reply; In my travels it has been my observation that people in poorer countries often appear happier than those in wealthy areas. They spend less time worrying about their jobs and spend more time doing just what they feel like, so certainly being rich does not guarantee happiness. However, taking wealth away from people just because they have money makes no one happier. Mostly, the rich have earned the right to decide where their money goes. In Europe taxes are higher than in America to pay for the extra governmental social services, but in America there is a greater social pressure to donate to charities. The end result is that services for the poor have a vague correlation with the average wealth of the country even though they are funded rather differently. If tax payers and tax departments had a simpler system to deal with they would have more time to think about the two different issues of poverty and unhappiness.
Extreme wealth is about power and it is snowball effect. As a person gets wealthier they can pay others to help them keep more of their wealth, and to earn even more. Once they have enough to buy influence they can increase their earnings yet again. Our present complex tax systems allow the unethical to work the system and gain influence so we need to unit in pushing for a more transparent and more fair system.
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