We need to understand the truism “taxes destroy”. They do: terribly.
Well-meaning people–and less well-meaning people–are dismissive of the aphorism, saying we need taxes if the government is to get things done.
The truth is that we need taxes like we need an extra hole in our heads, but who can be found these days to show that taxes are literally destroying what could be?
What then is the alternative to taxation?
Capturing the economic rent of the nation for the nation is the alternative: the unearned income, or social dividend, that is currently largely being taken by banks and the 0.1%.
For government to take economic rent is NOT just another form of taxation. It carries no damaging deadweight costs. As one social commentator said, it would be better for the economic rent of the nation to be thrown into the sea than to allow it to be taken privately.
What are these deadweight costs of taxation? The damage done to economies is at least as much as the amount of taxation collected. Harvard professor Martin Feldstein says the ratio can be higher than 2:1, that is, more than $2 damage for every $1 collected.
In “Unlocking the Riches of Oz” (2007) I explained exactly how, if Australia had taken the economic rent of land instead of taxes on wages and profits, her GDP would be double and, of course, everyone would be much better off.
Aren’t we stupid not to choose this option?
Now I’m off to watch the ABC’s “Insiders” discuss which taxes are good for us. [The answers is NONE, guys!]
“Economists differ on their measures of what they call the ‘excess burden’ of taxes that distort economic activity. Some have concluded that the losses are in the order of $2 for every $1 raised by the taxes that damage people’s economic behaviour (Box 6:4). I base my assessment on Mason Gaffney’s judgement, which rests on a lifetime’s study of how real estate markets affect the economy. He lived through, and personally observed the fallout from, five 18-year business cycles. In his view, the appropriate starting point for the reassessment of an economy’s productive potential is a tax–induced loss of wealth and welfare as measured by a 1:1 ratio (Box 6:6).”
- RENT UNMASKED: How to Save the Global Economy and Build a Sustainable future – Essays in Honour of Mason Gaffney, Fred Harrison (Editor), Shepheard-Walwyn (Publishers) Ltd., London, 2016, Chapter 6 (Fred Harrison), pp.128-29