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Federal Taxes

Nic Tideman:  A Bill of Economic Rights and Obligations

Article 1: Each person has the right to decide whether and how to use his or her talents. Those who are self-employed have a right to the full economic product of their efforts. Those who are employed by others have a right to the full amount of the compensation that their employers agree to pay them. Thus Congress and state legislatures shall levy no tax on wages or interest or spending. ...

Article 3:
All persons, in all generations, have equal rights to natural opportunities, such as the use of land, natural resources, and the frequency spectrum. Therefore Congress shall place levies on states to equalize among states the per capita annual value of access to natural opportunities, and to compensate for the harmful effects of activities in states on other states and on future generations. State legislatures shall place corresponding levies on their subdivisions.

Article 4:
Congress may place levies on states to collect from states a portion of the benefits they receive from national defense, national systems of infrastructure, research of national significance, or any private activity that has widespread public benefits. State legislatures may place corresponding levies on their subdivisions. ...

Article 1 says that we have a right to what we produce: as workers, as entrepreneurs and as savers. Neither Congress or state legislatures may tax this income, or our corresponding spending. While they may not levy taxes on these things, Article 3 says that Congress and state legislatures are required to place levies on states and state subdivisions respectively, to equalize the per capita annual value of access to natural opportunities, to compensate for the harms that activities in states cause for other states, and to compensate for losses to future generations. Article 4 permits Congress and state legislature to finance activities that have benefits beyond a single subdivision, but only by levies on subdivisions, not by taxes on persons.

Mason Gaffney: Cannan's Law
Federal taxation should bear heavier on land income, and lighter on wage and salary income, as in 1916. It was constitutional then; it still is. The combination of a citizens' dividend and income-tax reform would drastically rebalance local incentives. Cities would compete to attract median people rather than, as now, to repel them. This would not cause swamping of cities with people because it is a zero-sum game in a closed system. Competition would simply raise wage rates and lower living costs.

Congress should repeal the tax exemption of state and local bonds, a massive ongoing subsidy to local landowners. This repeal will be challenged as an invasion of state sovereignty, but recall that Congress had no trouble in 1939 repealing the tax exemption of state and local employees. Would the courts find bonds to be more sacred than payrolls? To find out, we only need a simple act of Congress that would quickly be adjudicated.

The federal government should review local zoning, and other exclusionary policies, as barriers to interstate migration.

There is a federal interest in better tax assessment of land, to keep buyers of used buildings from overallocating their tax "basis" to depreciable buildings, thus arranging falsely to depreciate land, and erode federal revenues. Something like a national board of equalization is called for. The U.S. Census of Governments, with the pioneering work of Allen Manvel and political support from Illinois Senator and Economics Professor Paul Douglas, established the precedent. While we're at it, let us outlaw the sequential depreciation of the same building by successive owners, an obvious outrage.

The result of such measures would be to restore the concepts of dignity of labor, and the key role of income-creating investing (as opposed to acquiring existing wealth and rent-seeking).  ... read the whole article


Nic Tideman: Improving Efficiency and Preventing Exploitation in Taxing and Spending Decisions

Of course, we are very far from public acceptance of geoliberal principles. So the question arises of what might be done within current political understandings to reduce inefficiency and exploitation in taxing and spending. It is hard to know how much more than what is being done might be done. Let me be on the imaginative side.

There is a proposal that tax increases be allowed only with a two-thirds majority of both houses of Congress. That has some merit, but it carries a risk of excessive deficits. It also allows the existing level of taxation to go unquestioned. It would probably be better to have a rule that every spending proposal must be approved by a two-thirds majority of both houses of Congress to be enacted. Maybe three-fourths. If spending is truly worthwhile, then, as Wicksell said, there is a way of financing it that will secure the approval of nearly everyone.

The current trend toward returning functions to the states is a step in the right direction. But it encounters understandable objections that poor states cannot afford to do what they ought to do. Some form of revenue sharing is needed. But it is important to have the right definition of which states are rich and which are poor. The level of well-being in a state is determined in part by the wisdom of its public policies. States should not be penalized for adopting productive policies. Revenue sharing should equalize per capita levels of natural opportunities (mineral revenues, fishing rights, pre-development land rents, etc.) Replacing the personal and corporate income taxes with either a flat income tax or a national sales or value added tax would greatly reduce the excess burden of federal taxes. (Excess burden is roughly proportional to the square of the typical marginal tax rate.) But almost all the gains go to the rich. Perhaps the flat tax could be combined with a guaranteed income.

Even better than a flat tax or a national sales tax, in my view, would be a return to the revenue system that was apparently envisioned by the drafters of the Constitution in 1787. I mean a rule that the federal revenue requirement would be allocated to the states in proportion to their populations. The use of population as the allocation device seems anachronistic in this era of concern for impoverished regions. But the allocation could be corrected by an expenditure that equalized per capita access to natural opportunities.

I see three important virtues in allocating the revenue obligation to the states.

  • First, it gets rid of the IRS and its intrusions. (A national sales or value added tax would do most of this, leaving only firms subject to the tax man's scrutiny.)
  • Second, it requires the states to compete in seeking ways of raising revenue that do not reduce the productivity of their economies. The competitive equilibrium is to raise as much revenue as possible from charges for exclusive use of land and other natural opportunities, and to tax labor and capital only as a last resort.
  • The third virtue is the likelihood that placing the revenue obligation on states rather than on individuals would lead to more careful scrutiny of the value of proposed expenditures.

With only fifty states and each state aware of exactly how much each spending proposal will cost its treasury, I believe that it would be much harder to secure approval for inefficient or special-interest spending. ... read the whole article

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

The United States is a federation of states (and Indian-nation reservations), with many government functions such as criminal law, education, and local services provided by the states. Since the federal income tax was enacted in 1913, taxation and authority have shifted increasingly to the federal government.

In 1902, federal taxes represented 37 percent of total revenue to governments at all levels.45 By 2002, federal taxes represented 67 percent of the government revenue pie.46 The share taken by state governments rose from 11.4 percent in 1902 to 21.5 percent in 1986. Local governments’ share fell from 51.3 percent in 1902 to 13.7 percent in 1986.

The change in the share of tax revenues taken by each level of government has occurred in large part because of the relative ease of increasing income taxes at the federal level, and the relative difficulty of increasing local and state taxes. Taxpayers find it much easier to respond to changes in state and local taxes, by moving to lower-tax communities. It is far more difficult to avoid taxes imposed by the federal government — especially since U.S. citizens are taxed even if they are abroad.

Revenue-sharing from the federal government to the states is, in effect, a tax cartel among the states, collusion to tax the population and then divide the funds among the states. Taxation at the federal level also encourages spending by the federal government instead of the states, so now we have federal departments and agencies for education, housing, health and welfare, energy, and other fields that once were local, state, or private-sector matters.

Local and state governments, once willing to go along with the federal government’s tax-and-revenue-sharing scheme, are beginning to realize centralized taxing brings with it centralized authority, dramatically reducing local control. Revenue-sharing comes with strings attached: Local and state governments must abide by federal government mandates in order to obtain the funds, taken from their residents in the first place. Revenue-sharing allows the federal government to sidestep the Tenth Amendment to the Constitution, which provides that powers not specifically delegated to the federal government are reserved to the people and the states.

Land value taxation would shift economic power back to state and local governments. Land is suited to local taxation because — unlike enterprise, capital, and labor — it cannot be moved. Land is also the logical source of local public finance because it does not burden enterprise, so that entrepreneurs don’t even want to run from it. Indeed, entrepreneurs welcome a shift to land value taxation, not only because their economic profits are not taxed if all taxation is on land values, but also because land value taxation reduces the price of land, so they do not need to borrow so much when they invest funds in an enterprise.

When public finance is based on land value taxation, government revenues flow up, instead of trickling down from the federal government to the states and then to local governments. Real estate taxes today are assessed and collected primarily by county governments; under a system of land value taxation, funds raised would flow up from the counties to the states, and only then to the federal government.

Land value taxation would create a decentralizing force, shifting or “devolving” power down to local government in accord with the principle of subsidiarity: that which can be most efficiently done by individuals or smaller jurisdictions should not be done by larger or higher-level jurisdictions. Government functions would then come under more observation and control by the voters, who can monitor and alter local governments much more easily than remote federal agencies. ... read the whole document




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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper