TP11. Don’t Tax Production
Many people grumble about “unfair” commercial practices among foreign competitors. Business men are worried about cheap production, and organised labour often’complains about sweatshop wages in some oriental countries. Yet many of Britain’s most effective international competitors are in countries where control of objectionable practices is as strong as in Britain, and in some case incomes and living standards are higher than they are here.
Low tax regimes have the edge in trade.
If a foreign competitor enjoys a more favourable tax climate, the British producer will have a tough time competing. The effects are obvious in the rapid decline of our manufacturing industry. Consider just one example. A woman checks the price tag on a dress in a British High Street. She puts it back on the rack because the dress is out of her price range. If the cost had been lower, she might have bought the dress and the retailer would have rung up a sale. The Value Added Tax of 17.5%% puts it out of reach.
Taxes inhibit sales. American and Canadian visitors to the UK are amazed at the high cost of clothing. In the United States sales taxes vary from place to place but hover around 5%. These taxes curb sales in the same way as ours do, but the lower tax gives that vital competitive advantage. A few years ago, there was an outcry over the enormous gap between car prices in Britain and Europe. One of the main reasons was the larger tax bite in Britain. Not only VAT but other indirect taxes, such as customs and excise duties, impinge on sales.
Consumers try to find ways of meeting the extra cost that taxes add to their bills. If they are employees, they press for higher wages. If the wage demand succeeds. the employer must again raise his prices for goods or services, giving another twist to the spiral.
On top of these taxes which burden enterprise indirectly, there are direct taxes like Income Tax and Corporation Tax, all of which force up prices and reduce competitiveness. Private enterprise also has to bear the tax bills of public enterprise. Government employees pay taxes and National Insurance too. Thus the taxes on productive enterprise must cover the salaries of people working in or for government, such as MPs and civil servants. The taxes which fall on businesses and on the ordinary citizen must also cover the taxes and National Insurance which these people are required to pay. So not only government wages but its taxes too must come from … taxes. Businesses and government departments alike must limit productive staff in order to hire an extra echelon of accountants – just to administer taxes.
The impact of our taxes on raising the cost of labour has other effects. Many potential enterprises never see the light of day because, when costs are weighed against income, the risks are too high. Manufacturers are reluctant to employ any but the most productive labour. Youth unemployment is high because employers cannot afford the cost of low production while people learn “on the job”. and at any sign of an employee slowing down in late middle age an employer will seek to persuade him to take early retirement.
These young or elderly unemployed will need Unemployment Benefit, which provides no wealth in return. It is paid for by the quasi-tax National Insurance – another burden on production. The government tries to counter these problems with subsidies. As well as Unemployment Benefits, subsidised Training & Enterprise Councils, Depreciation Allowances, Venture Capital Incentives, Youth Training and Work Experience must be paid for out of taxation on the entrepreneur.
A different tax.
This absurd state of affairs, which is doing so much damage to production in Britain, can be remedied by a different kind of taxation system which does not fall as a burden on production. Existing taxes, such as Income Tax, Corporation Tax, VAT and Customs Duties should gradually be replaced by a different kind of tax, a tax on Land Values.
First, all pieces of land in the country must be valued. This valuation would consider the value of the site alone, and would exclude the value of man-made “improvements” on the site, such as buildings, machinery or growing crops. Then a Land Value Tax (LVT) would be collected on the basis of that valuation. It would probably be low at first, but would gradually increase. As LVT increased, other taxes would be progressively increased. Like other taxes, LVT would require periodic (probably annual) reassessment as land values fluctuated.
One of the many merits of LVT is that it is no kind of burden on production. Nobody would find himself paying more LVT if they produced a lot of things, or less LVT if he did not produce things.
Has LVT been tried?
Yes. Although nobody yet applies the full LVT which we would like to see, a good many countries apply a measure of LVT, always with beneficial results. It constitutes a large proportion of the revenue of Taiwan and Singapore, where it is used to apy for investment in public infrastructure. It is used to raise local government revenue in many Commonwealth countries and in parts of the United States. In those places it is proving a positive stimulus to the economy because the owner of land needs to use that land efficiently in order to defray the tax which will fall on him in any event.
In other Topic Papers in this series, we show that the value of a piece of land discounting, of course, the “improvements” – owes little or nothing to what the landowner has done, but everything either to nature or to the presence and activities of the community. LVT is therefore not only a sensible tax to apply from an economic point of view because it does not discourage production, but it is also a fair tax. Surely it is fairer to tax people on the basis of the value which they enjoy but have not created, rather than on the basis of value, which they have created by their own efforts, physical or mental!
Conclusion.
Our present taxes undermine production, crippling the economy. Conversely, switching taxes to land values actually helps production by inducing the owners of idle or under-used land to bring it into productive use.
Further reading;
Henry George, Progress and Poverty; 1st edition Appleton, New York, 1879
George Charles, Elementary Economics; Henry George Foundation (Australia), 1991
ISBN 0 909713 057
Fred Harrison, Boom and Bust; House prices, Banking and the Depression of 2010;
Shepheard-Walwyn, 2005
Articles
Land Value Tax Links
The Tax Burden
Article List
- Welcome
- SA 88. Is there another way? by Tommas Graves
- SA 87. Time for a look at Rent by Tommas Graves
- SA 86. It’s rather Odd………….. By Tommas Graves
- SA85. Born to become a Georgist by Ole Lefmann
- SA84. Happy Nation by Lasse Anderson
- SA83. Ulm is buying up land, sent by Dirk Lohr
- SA82. Radical Tax Reform by Duncan Pickard
- SA 81. All taxes come out of Rents, by Rumplestatskin.
- SA 80. The Housing Crisis and the Common Good, by Joseph Milne
- SA 79. The “housing crisis” is no such thing, by Mark Wadsworth
- SA78. The Inquisitive Boy by “Spokeshave”
- SA 75. A Note on Swedish Taxes, by Tony Vickers MScIS MRICS
- SA 74. Homes Vic by Emily Sims
- SA73 Public Revenue Without Taxation by Peter Bowman
- SA71. Two presentations by Ed Dodson
- Short Sighted Benevolence
- SA 72. CAN YOU SEE THE CAT?
- SA70. Dissertation on Land Rental by Marion Ray
- Verses on the theme
- SA69. Argentina by Fernando Scornic Gerstein
- SA68. The Right to Work, by Leslie Blake
- SA66. The Most Wonderful Manuscript by Ivy Akeroyd 1932
- SA65. Housing Crisis? What Housing Crisis? by Mark Wadsworth
- SA64. Making Use of History by Roy Douglas
- SA63. The Fairhope Single Tax Colony – from their website
- TP35. What to do about “The just about managing” by Tommas Graves
- SA62. A Huge Extra Resource, by Ed Dodson
- SA61. Foundations of Earth Sharing Why It Matters: By Lawrence Bosek
- SA60. How to Restore Economic Growth, by Fred Foldvary, Ph.D.
- Two cartoons by Andrew MacLaren MP
- SA59. The Meaning of Work, by Joseph Milne
- SA 58. THE FUNCTION OF ECONOMICS, by Leon Maclaren
- SA 57. CONFUSIONS CONCERNING MONEY AND LAND by Shirley-Anne Hardy
- SA 56. AN INTRODUCTION TO CRAZY TAXATION – by Tommas Graves
- SA 55. LAND REFORM IN TAIWAN by Chen Cheng (preface) 1961
- SA54. Saving the Commons in an age of Plunder – by Bill Batt
- SA53.- Eurofail – VAT, by Henry Law
- SA52. Low Hanging Fruit – by Henry Law
- SA51. Location Theory and the European Union, – by Peter Holland
- SA50. Finland’s Basic Income – why it matters by Fred Foldvary, Ph.D.
- SA 29. A New Model of the Economy, by Brian Hodgkinson, as reviewed by Martin Adams of Progress.org
- Economics Explained (In 1 Simple Cartoon)
- SA 48. LANDED (Freeman’s Wood) by John Angus-StoreyG2
- SA 47. Justice and the Common Good by Joseph Milne
- SA 49.Prosper Australia – Vacancies Report
- SA39. A lesson from Alaska: further thoughts? By Alanna Hartzog
- SA23. Taxation: a brief history by Roy Douglas
- SA45. Of course, it wouldn’t solve all problems………by Tommas Graves
- SA43. TIME TO CALL THE LANDOWNERS’ BLUFF by Duncan Pickard
- SA44. Answering questions to UN Habitat 3 Financing Urban Development by Alanna Hartzog
- SA15. Why we don’t have a Housing Shortage, by Ben Weenen
- SA27. Money and Natural Law, By Tommas Graves
- SA42. NO DEBT, HIGH GROWTH, LOW TAX By Andrew Purves
- SA40. High Land Prices and Rural Unemployment, by Duncan Pickard
- SA28. Economics is a Natural Science by Duncan Pickard
- SA34. Economic Answers to Ecological Problems by Seymour Rauch
- SA22. Public Revenue without Taxation by David Triggs
- SA41. WHAT FAMOUS PEOPLE SAID ABOUT LAND contributed by Frank de Jong
- SA36. TAX THE RICH? Pikety and all that……..by Tommas Graves
- SA46. LAND VALUE TAX: A VIABLE ALTERNATIVE By Henry Law
- SA35. HOW CAN THE ECONOMY WORK FOR THE BENEFIT OF ALL? By Peter Bowman, lecture given at the School of Economic Science.
- SA38. WHO CARES ABOUT THE FAMILY by Ann Fennell.
- SA30. The Turning Tide: The Beginning of Monetary Trade in Anglo-Saxon England by Raymond Makewell
- SA31. FAULTS IN THE UK TAX SYSTEM
- SA33. HISTORY OF PUBLIC REVENUE WITHOUT TAXATION by John de Val
- SA32. Denmark By Ole Lefman
- SA25. Anglo-Saxon Land Tenure by Raymond Makewell
- SA21. China – Four Thousand Years of Taxing the Land by Peter Bowman
- SA26. The Economic Philosophy of Georgism, by Emma Crosby