Written evidence submitted by The Henry
George Foundation of Great Britain
1. EXECUTIVE
SUMMARY
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. FACTUAL INFORMATIONRESPONSE
TO QUESTIONS
FROM TREASURY
COMMITTEE
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
attributehis 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 obviouslocation
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 productionso 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 payersso
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 certainso 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 equallyso 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. RECOMMENDATIONS
FOR ACTION
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
|