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Is it legitimate to tax labour and capital?

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Peter Fennell

Joined: 27 Sep 2007
Posts: 53
Location: London

PostPosted: Sun Jan 02, 2011 11:51 pm    Post subject: Is it legitimate to tax labour and capital? Reply with quote

See the thread "Modernising Henry George"
Legitimate to tax labour and capital
Herman Daly says:
"Taxation of value added by labor and capital is certainly legitimate. But it is both more legitimate and less necessary after we have, as much as possible, captured natural resource rents for public revenue."

To say otherwise requires an unconventional meaning for the word 'legitimate'. Daly's preferred source of govt revenue is clear but he does not know if the rent would be enough to support infinite spending aspirations. Who does?

Natural limit to government spending?
If there were a limit to govt spending then it might be possible to say that the rent suffices. In his interesting thesis 'Journey around the lighthouse' Derek Aldous turns that around and argues that rent could be regarded as a natural limit for government's budget. eg. if a proposed infrastructure scheme is not forecast to raise land values sufficiently to match its cost then it should not be pursued. Attractive proposition - a sort of prudential Natural Law.

But in the end a legitimate government may do legitimately what is best for the national interest up to commanding the whole of national resources if necessary, for instance under threat to independence as in WWII.

That is the extreme to test the rule. But it holds more generally. To abuse Burke a little, if it "suits the nation's nature as modified by its habits" to have a Swedish level of collectivism, it may be called inefficient, from a Georgist point of view, but cannot properly be called illegitimate even though it may exceed the size of the rent.

Resented taxes
Daly presents compelling resource efficiency arguments for LVT. Less convincing is his resentment argument:
"Our present practice of taxing away a lot of the value added by individuals from applying their own labor and capital creates resentment, and discourages the supply of labor and capital."
Maybe in USA where they are more savvy on tax and spend. In UK most people feel the level of tax is 'about right' because
1) they believe in some of the causes for which it is being collected and
2) they do not actually pay it
Firms resent it but have no vote. The UK electorate's most resented tax is Council Tax, a local tax with a property component! LVT would be the most resented tax because we would actually have to pay it.
But perhaps it is right that every penny of taxation should be bitterly argued over - it would make us think harder about what we want govt to do!
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