u/Titanium-Skull

(Third time's the charm)

For an explanation, here's a snippet of a description explaining why taxing the unearned income of finite assets like land can achieve both efficiency and equity without needing to tax and punish the work of laborers or investments into truly productive capital:

>One way is to realize that wealth not only consists of producible capital, but also of non-producible (or “fixed’’) factors. Fixed factors generate rents—that is, payments in excess of what is needed to sustain production. Taxing these rents can enhance efficiency and, potentially, reduce inequality

>...

>In the first way, one prominent example of a rent-generating fixed factor is land.((Monopolies also generate rents, since they can overcharge consumers due to their lack of competition. This practice increases inequality and reduces productivity in the long term. A detailed discussion on the relationship between monopolies and inequality can be found on this blog in an interview with Angus Deaton.)) The owner of a piece of land in a major city can charge a much higher rental rate than the owner of a piece of land somewhere in the countryside, simply because urban land is scarce. Its value is derived from the totality of benefits of being in a city. In economics, it is common knowledge that taxing land is not distortionary, i.e., there is no efficiency loss from it. The reason is that, as an approximation, scarce urban land is fixed: Land owners cannot pass on a land tax through higher prices. The supply of urban land is inelastic—that is, a price increase will not affect its supply—while its demand is not.

>Feldstein (1977), however, discovered that a tax on land rents can indeed be distortionary, by inducing a shift in the portfolio of investors when they hold more than one asset. Edenhofer et al. (2015) show that such a “portfolio effect” can be welfare-enhancing if there is too little capital in an economy relative to aggregate consumption, both by increasing growth and reducing inequality between generations.

There are also other sources of economic rent from finite assets which we can tax or otherwise reform (especially artificially finite things (e.g. patent rights to a specific innovation) since we can undo the human-made laws which made them so in the first place). The rents that accumulate to resources and privileges with a fully fixed supply are a hidden devil for our economy to deal with, and whatever revenue we do collect can be used to untax the goods and services people make. We can have more growth with greater equality, we just need to set the incentives straight on rewarding producing for others and recompensing taking the finite from others.

Alright, it seems Reddit finally fixed its image post problem and I can show this figure

Here's the article this figure came from. This was back in 2018, but it shows how the value of our most needed finite resource, which stems from society's presence, is being used for unearned wealth extraction while actually productive businesses and workers are burdened by taxation. The system is backwards and should be blamed for our current woes, and it needs reversal.

To illustrate this, here's a good snippet from this article by promarket:

>Wealth taxes can reduce wealth disparities without compromising efficiency; it can sometimes even increase economic growth. One way is to realize that wealth not only consists of producible capital, but also of non-producible (or “fixed’’) factors. Fixed factors generate rents—that is, payments in excess of what is needed to sustain production. Taxing these rents can enhance efficiency and, potentially, reduce inequality.

...

>In the first way, one prominent example of a rent-generating fixed factor is land.((Monopolies also generate rents, since they can overcharge consumers due to their lack of competition. This practice increases inequality and reduces productivity in the long term. A detailed discussion on the relationship between monopolies and inequality can be found on this blog in an interview with Angus Deaton.)) The owner of a piece of land in a major city can charge a much higher rental rate than the owner of a piece of land somewhere in the countryside, simply because urban land is scarce. Its value is derived from the totality of benefits of being in a city. In economics, it is common knowledge that taxing land is not distortionary, i.e., there is no efficiency loss from it. The reason is that, as an approximation, scarce urban land is fixed: Land owners cannot pass on a land tax through higher prices. The supply of urban land is inelastic—that is, a price increase will not affect its supply—while its demand is not.

In fact, recouping the value of non-producible factors like land can help those who work by making sure things like land are treated as speculative financial assets, which carries a whole host of issues.

The reason why, for anyone wondering about Georgism:

Land speculation is a massive issue because land is not something we can produce more of. While we can turn it from being unusable to transform it into something we can use (like reclaiming it from the sea), land has a supply that is effectively fixed. The clamoring demand to control the finite land raises its costs and scarcity without any way for new production to offset that scarcity, siphoning wealth from laborers and businesses to those who own that finite bottleneck.

Combine that with our tax system currently targeting the goods and services people make, and the result is that actually productive and beneficial work and investment is being squeezed out by the race to claim the Earth. It isn’t just land which has this issue, but any other resource or privilege which is finite since others can’t produce more of it has a problem too; like a mineral deposit or a specific patent monopoly claim for a particular innovation (which is nuanced since rewards can encourage innovation, but still has issues in Georgist eyes).

The idea behind Georgism to solve this issue is that we should untax the goods and services people make and instead recompense (or otherwise reform) the finite assets people take.

For more reading on this from the Georgist POV, here are some good articles:

https://landeconomics.org/problem

https://progressandpovertyinstitute.org/whats-so-special-about-henry-george-anyway/

Here's a quote from Adam Smith advocating support for this exact idea:

>Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground.

Just to add some extra context, the landlords that classical economists spoke badly of collecting rent was meant only to refer to those who got their wealth from the finite land. Classical economists, perhaps most importantly Henry George, distinguished the capital investment of landowners as legitimate and a part of production while criticizing the ability to extract wealth off the finite land itself, which doesn't aid society.

The big idea then is that instead of taxing the goods and services society makes, like through labor or capital investment, we should instead recompense (or otherwise reform) the finite resources and privileges people take, most especially land.

For anyone new: the idea behind this is that we can not claim to care for the poor old widows if we're only willing to excuse the landed ones who inadvertently benefit from the impoverishment of the landless. Breaking the land barrier by taxing and upzoning our most necessary finite resource doesn't mean we have to throw the landowning elderly to poverty. There are mechanisms like densifying in place, phasing the tax in, and others to help accommodate them. What's especially forgotten too is that the elderly themselves can also benefit from being able to move around easier due to more affordable housing.

What we can not accommodate is this current system continuing to punish people for making goods and services while rewarding people for taking finite resources and privileges, which perpetuates much economic suffering and inequality. The system has to be reversed by untaxing the former while recompensing (or otherwise reforming) the latter, and breaking legal constraints like heavily restrictive zoning that makes using finite resources like land well legally impossible.

A quick disclaimer: this meme isn't meant to insinuate that only the landless have to like Georgism, there are likely many owners of poor land who still get their wealth from working who could benefit. Even those who have ever increasing land values from owning a plot in a good, increasingly valuable location can see that revolving our economy around a finite resource like land is unsustainable for the well-being and equality of our society.

For anyone new here wondering what Georgism is, here's a good explanatory video on it from BritMonkey.

In a single line: Georgism's about untaxing the goods and services, from both labor and capital, that people make, and instead recompensing (or more broadly reforming if they're artificial) the finite things people take; here's a good list of them. The most prominent example of this is land, which due to its low holding costs in relation to its ever increasing value acts as a vehicle for speculation, where people hold land waiting for its price to rise instead of using it. This is bad because, unlike normal commodities, land's finitude means we can't produce more of it to bring its prices back down to Earth. The result is that the combination of land being made artificially scarce and expensive by land speculation alongside taxes which currently weigh down people who actually try to use the land through their labor or capital investment contributes massively to unaffordable housing costs as it becomes too expensive to buy and build houses.

The hope is that shifting taxes off work and investment and on to land will make land cheaper and more abundant by taking out speculators who withhold it while also making it less expensive to use with taxes on work out of the way. In turn, people who get more of their earnings from labor/investment that helps others instead of holding off finite resources that harms others would benefit mightily. This has been seen in real world practice as well: New York City in the 1920s shifted its property tax base fully towards the land and off the buildings and got the largest single-decade housing boom in their history.

For anyone not in the know of Georgism wondering why land's finitude, the fact that we can't produce more of it, is so important in why we can’t treat it like other commodities, here's the reasoning:

Unlike other things like buildings or cars which we can make more of and can make substitutes for, land as a whole and each individual location are fully fixed in their supply. This means that when the demand for land goes up, people don't make more land, instead those who currently own land whose demand has gone up can simply charge higher rents and prices to access the parcels they own. This is bad as is because it means a lot of the money of work and investment is going into a resource that we don't even produce, and which increases inequality as incumbent owners can extract more wealth from non-owners have no choice but to buy/rent from those incumbents; without being able to make more land to decrease prices like we can with other commodities.

But it gets even worse when we add on the effects of land speculators who buy and hold land not to use it, but to wait for its price to rise before cashing in. This only worsens everything as it sucks out productive investment from the economy and causes land values to spike even harder. Add on too that our current tax system punishes those who do try and work and invest in the land to make good use of it instead of letting nature's gift go to waste, and it's no wonder poverty is so widespread. A very glaring example of this is California which, due to its massive land prices aided by policies like Prop 13 cutting the taxation of land, now has one of the highest poverty rates in the US due to its massive cost of living. This constraint and issue of speculation also plagues industries like farming (especially considering how subsidies increase land prices)

The fundamental idea behind Georgism is meant to fix this: don't tax the goods and services people make, recompense (or otherwise reform) the finite resources people take, land being the most important. Unlike taxing normal goods and services, taxing land doesn't discourage us from making more land, something we already don't do anyways and which makes it perfectly efficient (you might point to land reclamation, but that's moreso taking once unusable land and making it usable, Georgists consider it more an investment into pre-existing land to be exempt from taxation than actual new creation). If anything, getting rid of land speculation which drives out productive investment would actually help the economy while reducing inequality. The idea is simple and has been effective even in limited capacities before, and it deserves to be implemented more.

Just to clear up confusion on what is meant by the words monopoly and privilege here, here are some excerpts about it:

>Rent, in short, is the price of monopoly. It arises from individual ownership of the natural elements — which human exertion can neither produce nor increase.

Henry George, Progress and Poverty Chapter 11

>Privilege is the advantage conferred on one by law of denying the competition of others.

Tom Johnson, Forward to the Book "My Story"

Simply put, the idea is to tax any asset, any thing which is finite since we can not produce more of it, meaning no one can reproduce that thing and enter the market for it, but is needed and demanded by society. Land is the most important, but this also includes all other natural resources. Beyond just taxation there is also broader reformation of artificial, non-replicable privileges like a patent/copyright over a particular discovery or limited licenses (like New York City's taxi licenses).

For those who don't know:

Land isn't the only example of this (though it is the biggest), here's a good snippet from this article which explains the problem:

>As both Stiglitz and Henry George point out, capital proper should refer to capital goods, tangible assets used to aid production. The issue is that increases in market values are not just restricted to those. Like George, Stiglitz points towards monopoly privileges like intellectual property, depletable natural resources, and of course, land as examples.
...
An increase in monopoly power shifts wealth from workers to the owners of the firms with market power, but the decrease in the wealth of workers is not recorded, while the increase of the value of firms is. Because of the market distortion associated with the exercise of market power, societal welfare is actually lowered.
...
The result is that much of the return to “capital” is actually just extractive rents(*). George noted that in the greatest fortunes "there will always be found some element of monopoly, some appropriation of wealth produced by others"

(*) <- economic rent

And instead of recouping the unearned returns to these finite resources and privileges, governments will instead tax people for producing and providing through their labor and commerce. Things like payroll taxes, sales taxes, tariffs, taxes on buildings, and more all discourage us from creating and giving what we truly want for the benefit of others.

We effectively reward people for holding out finite resources from the rest of society, letting them bottleneck the economy and squeeze it dry while punishing people for trying to keep the economy working in spite of those issues. It's a two way press that pushes many into poverty, and the solution is simple:

don't tax the goods and services we make, recoup the returns of the finite resources people take.