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RE: 'Til Debt Do You Part - Is Your Future Already Over?

in #economics7 years ago

Thomas Piketty does the most comprehensive analysis of these issues in his magisterial Capital in the 21st Century. Well worth the read. Piketty is notable for having the largest accumulation of real world data of any economist in over fifty years, rather than relying on computer models or small sample sizes. He uses literally centuries worth of tax and trade data from a large number of countries to base his claims off of- he's next to unassailable.

His thesis essentially boils down to one claim- r>g, or "the rate of return on capital is greater than the rate of growth of the economy at large". Capital always out-earns wages and salary. The best way to beat this? Historically, it's unquestionably the progressive income tax.

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I thought that Piketty's analysis was good, but his conclusions were a bit... junior. Since publishing Capital in the 21st Century, he's received a lot of fair criticism and, to his credit, he seems to have taken it on board. If he writes another book, I expect that it will be a lot better.

Income taxes of any kind create economic distortions. All taxes are unfair, but it's particularly unfair to take money away from people because they earned it. I prefer a land value tax, which is a tax on privilege (economic rents). It's non-distortionary, has zero deadweight loss (i.e. it's extremely efficient) and directly addresses the problem of inequality growth. I recommend taking a look at Progress and Poverty by Henry George.

Land value taxes worked extremely well in Japan in the late 19th century and in Australia from the early 1900's until the 1950's (we only have them at state/territory level now). Politicians in the UK were recently talking about introducing them.

What a stellar article, saw you listed on @ocd, fantastic job of simply illustrating such an important issue that everyone with a dollar bill and a heartbeat should be attacking with a fervor, not ignoring with indifference. I post about similar topics, with many of them libertarian leaning, I would be curious on your thoughts on them if you ever get the chance for feedback I would greatly appreciate it. Stellar job @penston! UPVOTE-FOLLOW worthy for sure!

Thanks. I didn't think this post would be as popular as the one I wrote about people who plunder the reward pool, but this is post is more typical of what I joined Steemit to write about.

I'm looking forward to checking your posts.

I'm well aware of Georgism, and am not a fan. First off, while certainly well intentioned, any single solution answer is inherently unstable- Piketty's advocacy for progressive taxation is his main thrust, but is hardly as comprehensive as the Georgist solution. (See also Popper's distinction between holistic and piecemeal solutions and social planning.)

Next, and most importantly, Georgists (in my experience) seldom bring up the neegative environmental effects of their plan. In particular, the gross damage done to their topsoil by Australia. (Deforestation in Japan in this time period was severe, but mitigated by centuries old forest conservation policies instituted by the shogunate) Basing your entire system of tax revenue off the value of the land hardly incentivizes putting protections in place on the land that reduces the tax value of said land by preventing its exploitation. National parks and wildlife preserves owned by the government don't generate revenue at anywhere near the levels of exploited and taxed land.

Third, the distribution of the world's capital is hardly so tilted towards land as it used to be. Intellectual property, for instance, makes up much of the world's capital today- far more than in George's time. Likewise, debts, stocks, and other purely financial instruments make up a huge portion of rhe world's capital now. That doesn't even count the vast increase in non-land physical capital, which is huge. Simply put, land doesn't make up enough of the world's total capital to balance income inequality anymore.

Taken to its logical conclusion, Georgism might proceed to a general tax on capital. This is, of course, a singularly challenging task, especially given how illiquid much of it is. Not impossible, but somewhat impractical.

Also, as to Piketty's maturity or lack thereof- his real-world dataset is larger than the datasets used by the entirety of Georgist economists. (As well as a number of other economic disciplines.) Data in that quantity forgives a lot.

And as to income taxation being unfair- governance has never and will never be about fairness. It's about monopolizing force. The anarchists got that right, even if I disagree with a lot of other stuff they think and want.

The unimproved value of land is constrained by zoning and whatever improvements exist nearby. Can you tell me more about the topsoil damage in Australia that you mentioned?

Land value tax wouldn't be used on farmland or areas zoned for extraction (mines) as that would incentivise environmental degredation. It makes more sense to collect royalties on whatever was taken from the land.

Indeed, land is not the only economic privilege that contributes to inequality growth, but its significance shouldn't be downplayed. I recommend taking a look at this list of total resource rents by Prosper Australia to give an idea of what could be taxed instead of incomes.

Basically, Australia's spent the last couple centuries stripping their topsoil for sheep, cattle, and short term (1-generation or less) farms. They have the most garbage soil management program of any major industrial nation on the planet- and there are some bad ones. (The world's total topsoil loss in arable land over the 20th century amounts to over a third of the amount currently in production, so that says a lot.) Using Australia as an example for anything to do with land is highly suspect at best. Hell, the Prosper Australia site you linked me to even says "Under a land tax system, the rural sector would enjoy a lower tax burden, encouraging decentralisation." This could very directly contribute to even further worsening the topsoil of Australia. (If you're really interested, I highly recommend Montgomery's Dirt: The Erosion of Civilization.)

There's no practical difference in collecting tax on land and on resources extracted from land when it comes to historical environmental degradation. We have examples of both methods dating back to the Roman Empire- only direct controls on land use, like preserves and National Parks, prevent environmental degradation of the land.

You're conflating land tax (or land rent) with land use.

A land value tax would be the wrong thing for agricultural land because it would incentivise people to pillage as quickly as possible and exit so as to minimise their tax burden.

Collecting royalties is appropriate because you're charging people for what they've taken. The more they pillage the land, the more they have to pay. If anything, it's a disincentive!

I agree with you that the environment is extremely important and I believe that this can be achieved by managing resources with a long-term mindset. One of the things I love about permaculture is how they focus on building soil and rehabilitating land.