Principles of tax policy - Treasury Contents

Written evidence submitted by The Henry George Foundation of Great Britain


1.1  Central to the evidence presented here is the ethical principle not to steal. This principle lies at the core of civilised economic behaviour and if it is not observed by a nation's sovereign government the consequences for the nation and her people are bound to be bad.

1.2  Evidence is presented to show how existing tax policies involve the theft of private property from individuals and firms. It shows that this cannot be justified by necessity since there is an abundant source of public revenue that only requires the collection of value that the community, as distinct from individuals and firms, is responsible for.

1.3  Attention is drawn to ways in which existing taxes generally inhibit growth and undermine other government policy goals and how the application of the principles advocated would avoid such difficulties.

1.4  Likewise the difficulties and inefficiencies associated with the collection of many existing taxes are shown to be corrosive of public morality and discredit government and civil authority.

1.5  The inability of existing taxes to avoid being a burden on the most economically vulnerable is society i.e. marginal industries, occupations and areas, is identified as their most distorting aspect.

1.6  Recognising the difficulties associated with the immediate implementation of the radical reforms that are suggested, practical recommendations are limited to some aimed at educating a new generation of economists in the existence and relevance of natural law as it pertains to political economy.

1.7  It is further recommended that treasury economists evaluate and critique the approach to political economy and the raising of public revenue along the lines outlined in this submission. In the event that the principles advocated are not found to be invalid the Treasury should be required to prepare, or commission the preparation of, an appropriate feasibility study. This would be aimed at identifying a brief for the phasing out of various existing taxes on production and replacing them with the collection of equivalent revenue from location value rent.


2.1  What are the key principles which should underlie tax policy?

2.1.1  Central to the evidence presented here is the ethical principle not to steal. This principle lies at the core of civilised economic behaviour and if it is not observed by a nation's sovereign government the consequences for the nation and her people are bound to be bad.

2.1.2  The principle "not to steal" did not need to be invented by human ingenuity since it is inherent in the nature of man as a social creature. It is however necessary for human beings to acknowledge it and such acknowledgement is a feature of the scriptures and laws of every known civilisation. Thus man-made law is required to respect and be in harmony with the nature of man and human society.

2.1.3  Implicit in the requirement not to steal is the concept of property, ie a recognition that some things may become one's own property whilst other things may belong to others or be held in common.

2.1.4  By nature each individual is endowed with life and a human body with physical, mental, emotional and spiritual attributes and powers. Those attributes and powers are their own and whilst others may be similarly endowed they are personal not common.

2.1.5  Human nature is such that man is obliged to use these powers in order to survive - he must work. Fortunately nature also provides something upon which, and with which, man may work and provide for his needs. The economic terms that refer to nature's provision and man's powers are "land" and "labour".

2.1.6  What a man produces alone, by the exercise of his innate powers on land that is equally available to anybody, becomes quite naturally his property and to take it from him is theft.

2.1.7  Man however rarely works alone since nature has also endowed people with what we might call a social instinct. Human families naturally tend to live in communities and in doing so enjoy additional value due to the benefits of association.

2.1.8  This is nurtured by yet another instinctive attribute—his propensity to exchange or trade. It is not necessary for anyone to invent or foster exchange or trade it arises naturally with the recognition that by cooperating and specialising in certain aspects of production individuals can be more secure and better satisfy their material, intellectual, emotional and spiritual needs.

2.1.9  With growth of population, settled communities, development, and specialisation, the provisions of nature and the benefits of association cannot be made equally available to everyone. In particular land of equal quality that people need to occupy exclusively cannot be equally available to all.

2.1.10  The consequence of this natural phenomenon is that the exertions of those who occupy the better locations yield more for a given input of labour and or capital than those obliged to occupy inferior locations.

2.1.11  Recognising this, people are prepared to surrender some of the fruits of their exertions for the benefit and privilege of exclusive occupation of a better location. Thus the phenomenon of rent arises in every developed community.

2.1.12  The obvious questions associated with this are, who creates location value? And, to whom is it due?

2.1.13  The answers are equally obvious—location value is created by the presence, protections and services provided by the whole community and it is thus due to the whole community. It is thus a natural source of public revenue that does not involve theft!

2.1.14  How much public revenue would collection of location value or rent yield?

2.1.15  If, as is conventional we refer to the return to labour and capital as their "earnings" we may note a primary division of wealth between "rent" and "earnings".

2.1.16  As we have noted, when communities are small and not concentrated, little or no rent arises. It then constitutes a small fraction of the value added by everybody's labour and capital whilst earnings represent a large share. As communities develop economically, rent naturally becomes an ever increasing fraction of the value generated whilst earnings, as a proportion (but not necessarily as an amount) naturally declines.

2.1.17  Thus as the need for public services increases so does the revenue to pay for them increase.

2.1.18  As we have noted above, the phenomenon of rent arises when people, recognising the advantages of a better location are prepared to surrender some of the fruits of their exertions for the benefit of its exclusive occupation. How much they need to pay for such a privilege is determined by the competition they encounter from other likeminded prospective tenants (ie the market) and the relative advantage the location in question enjoys compared with any site that may be occupied without payment (ie having nil rent).

2.1.19  How much they can afford to pay is influenced by how much of their earnings they are left with after meeting any other unavoidable outgoings. Taxes represent an important item here and it follows that the amount that they and their competitors can afford to bid in rent is reduced by an amount at least equal to their current tax burden. Other unavoidable outgoings would include any inflated prices they are obliged to pay to the monopoly suppliers of goods and services that they require, together with any losses they might suffer due to theft, fraud, corruption or waste, in their community.

2.1.20  From the above it is evident that, apart from any other advantages that might attend this method of collecting public revenue without theft or taxation, it could raise more public revenue than is currently collected.

2.1.21  In conclusion the key principles which should underlie tax policy should:

2.1.22  1. Ensure that theft is avoided

2.1.23  2. Ensure that all value produced by the community is collected as public revenue before any value produced by individuals or groups is taken

2.1.24  We may also mark how by achieving this through the collection of location value rent other well known principles of a good tax (identified first by Adam Smith and summarised by Henry George in Progress and Poverty) are satisfied including the following:

2.1.25  3. That it bear as lightly as possible upon production—so as least to check the increase of the general fund from which taxes must be paid and the community maintained

2.1.26  4. That it be easily and cheaply collected, and fall as directly as may be upon the ultimate payers—so as to take from the people as little as possible in addition to what it yields the government

2.1.27  5. That it be certain—so as to give the least opportunity for tyranny or corruption on the part of officials, and the least temptation to lawbreaking and evasion on the part of the taxpayers

2.1.28  6. That it bear equally—so as to give no citizen an advantage or put any at a disadvantage, as compared with others

2.2  How can tax policy best support growth?

2.2.1  Tax policy can best support beneficial economic growth by:

2.2.2  Encouraging the efficient production of wealth.

2.2.3  Discouraging negative economic activity.

2.3  To what extent should the tax system be structured to support other specific policy goals?

2.3.1  It is not reasonable to assume that a conflict should arise between the manner in which government raises public revenue and other policy goals. If such conflict arises it is more reasonable to assume that one or other, or both of the policy goals are faulty.

2.3.2  It is however easy to see how such an assumption can arise since it is clear that the current tax system does not only fail to support other worthy policy goals it most definitely undermines them!

2.3.3  When employment is taxed as with income tax and national insurance contributions, employment policy is undermined.

2.3.4  Likewise when production, trade, adding value, or capital are taxed industrial policy is undermined.

2.3.5  When labour is taxed and the use of labour saving, more energy intensive, and material demanding methods of production are encouraged, energy and environmental policy goals are undermined.

2.3.6  When industries and businesses in areas where location values are relatively low are taxed at the same rate as where they are relatively high their disadvantage is magnified and their viability is compromised. This is critically important in connection with policies that affect national, regional and local land use planning and regulations, and international trade.

2.3.7  The tax system should be structured to support all worthy policy goals but the most important should be that of ensuring the highest possible degree of security, justice and freedom to all UK citizens.

2.4  How much account should be taken of the ease and efficiency with which a particular tax can be imposed and collected?

2.4.1  The ease and efficiency with which a tax can be collected is very important indeed. If a tax is difficult to collect it will normally be because people are ready and able to avoid paying it.

2.4.2  People are generally ready to avoid taxes that they perceive to be unfair.

2.4.3  They are generally best able to avoid paying taxes that require them to admit to something can be kept secret.

2.4.4  Hence apart from the obvious costs of collection and losses due to failure to collect, taxes that are difficult to collect are corrosive of public morality. They encourage people to deceive and lie. They make criminals of people who would otherwise be law abiding and make other criminal activity less abhorrent.

2.4.5  They discredit government and civil authority.

2.4.6  They are responsible for diverting the energies of some of the finest talent in the nation into activities that produce no wealth.

2.5  Are there aspects of the current tax system which are particularly distorting?

2.5.1  Aspects of the current tax system that are particularly distorting are those that inhibit the production of wealth at the margins of productivity.

2.5.2  Every form of production is naturally marginal somewhere and in every competitive business there is labour and capital equipment employed that is marginal i.e. the value they add only just exceeds their cost.

2.5.3  By definition, production at the margin of productivity is barely viable, and any increase in production costs or reduction in revenue leads to failure.

2.5.4  Current taxes levied on production eg agriculture, manufacturing and trade, and on labour or on capital stock or equipment are not able to distinguish between that which is marginal and that which is not.

2.5.5  Businesses, workers and capital equipment that would naturally be quite viable may be rendered unviable by such taxes.

2.5.6  Value that is not derived from production but from only a property right may be taxed without such distortion.

2.5.7  The value of property rights that derive from permissions and privileges conferred by the community are not diminished by collection and neither is the use that can be made of them compromised.

2.5.8  In contrast where such value is not collected for the whole community but allowed to be retained or collected by individuals they may be held out of optimum use for speculative purposes as is evident from land speculation.

2.5.9  As a private asset such value also becomes collateral for private rather than public loans and security for the issue of privately issued money rather than government issued money.


3.1  It will be clear to the reader that what has been recommended as the key principles which should underlie tax policy, and the method by which it is suggested public revenue should be collected, call for the most radical of changes in tax policy. Nothing less than the abandonment of virtually all existing taxes and their replacement by the collection of location value rent and other values that are created by government on behalf of the community. Examples of the latter might include eg the value of operating licenses and monopoly privileges where individuals and firms are currently able receive a benefit that does not correspond with the value they create. The collection of Location Value Rent (LVR) is not suggested as an additional or supplementary tax it is to be in replacement of all current taxes that are levied on production, trade, labour and capital.

3.2  It is recognised that this is unlikely to happen quickly, not least because of the profound impact it would have on the value of assets that currently underpin the entire financial and monetary system. The fact these systems are, like the tax system, also in need of radical change, is hugely important. The privilege of being allowed to create money that is virtually indistinguishable from that issued by government, that is effectively backed by government, but which is beyond government's control is enormously valuable to the banks that benefit. The loss to public revenue opportunity is only part of that problem.

3.3  If it is assumed that immediate radical fiscal and monetary reform is not possible but that the principles identified are valid, the challenge becomes to prepare and plan for eventual implementation.

3.4  With this in mind the following recommendations are offered

3.5  Require that the curriculum for political economy and economics at A Level and at University Degree level be reviewed to include a full appreciation of the existence and relevance of natural law as it pertains to political economy.

3.6  Require that treasury economists likewise undergo a programme of continuing professional development training aimed at acquainting them with a full appreciation of the existence and relevance of natural law as it pertains to political economy.

3.7  Require that the Treasury be required to evaluate and critique the approach to political economy and the raising of public revenue as outlined in this submission.

3.8  In the event that the principles identified in this submission are not found to be invalid the Treasury be required to prepare, or commission the preparation of, a feasibility study aimed at identifying a brief for a planning study for the phasing out of various existing taxes on production, and replacing them with the collection of equivalent revenue from location value rent.

January 2011

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