Thesis Number: #4 (Page 3 of 8)
Samuelson does concede that “Pure land rent is in the nature of a ‘surplus’ which can be taxed heavily without distorting production incentives or efficiency” (1955: 535). But why bother when the “Rent income of persons” is shown (on page 182) as a mere 3% of Net National Product? Not enough revenue here to fund for public services!
In a version of Economics co-authored with a Yale professor, Samuelson reports the “Rent income of persons” as less than 2% of Gross National Product (Samuelson and Nordhaus 1985: 115). So what’s all the fuss about? Drawing revenue from pure rents might be fair, and might be efficient, but the sum too trivial to target!
In 1963, Richard Lipsey’s textbook assured students that “an effective tax on economic rent would finance only a tiny portion of government expenditures” (Lipsey 1979: 371). Besides, there was a grave problem with the proposal: “The policy implications of taxing rent depends on being able in practice to identify economic rent. At best, this is difficult; at worst, it is impossible” (1979: 370, emphasis added). Professionals perform this exercise daily for real estate clients, but in academia the task is perceived as nigh on impossible! The methodology is explained by Ted Gwartney (Gwartney n.d.), whose professional experience as a valuer of real estate for fiscal purposes is second to none.
Lipsey, who taught at a leading Canadian university, claimed that his was a “positive” (value-free) economics. There was nothing objective about his ideological pronouncement on the policy of shifting taxes off buildings and onto land values, which was favoured by some American towns. This was, he asserted, a “curious anachronism”. This limited version of tax reform increased the supply of homes, benefitting communities by penalising land hoarders. Anachronistic?
Heinz Kohler repeats the hoary myths about not being able to isolate economic rent, and that rents would not yield sufficient revenue to defray government expenses (Kohler 1992: 857). His textbook is an example of the damage such manuals inflict on people who need to live in the real world. He claims that, when California imposed a cap on property taxes in 1978 (the Proposition 13 initiative), by the mid-1980s “an unexpected consequence had emerged” (Kohler 1992: 859, n.13). For every $1 decrease in the property tax, property values rose by $7. Unexpected? Fiscal reformers did predict that a cap on the property tax would translate into higher residential land prices. They were correct. But for academics holed up in their intellectual fortresses, this outcome could not be anticipated. So California’s voters were not guided away from what proved to be a disastrous decision for families who needed affordable homes. Existing residential land owners laughed all the way to the bank.
It is not surprising, therefore, that the black art of economics played a central role in propelling the property boom that destroyed millions of jobs in 2008.
The foregoing examples are not exceptional. They are cited to convey a sense of the systematic misinformation that colours young minds. If NASA scientists treated gravity in the same way that economists play fast and loose with the land market’s financial gravity, rockets launched from Cape Canaveral would all end up in the ocean.
This raises two questions. How much damage is caused by taxation? What proportion of a nation’s income is represented by rent?