Wednesday, August 3, 2011

Debt Limit

Here's a hypothetical situation. I receive a bill for $10,000 but I'm able to identify $5,000 to pay it. I'm in trouble. But I didn't get in trouble just now, I got in trouble a month ago when I signed the deal committing me to pay $10,000 when I knew up front that I would only have $5,000 available when the bill came due.

So why does our government commit itself in advance to pay more than it knows it will have on hand when the bill comes due?

Besides, the debt limit is not the problem. The debt is the problem. And the way we incurred the debt is the real problem.

Here's how our capitalist economy appears to be working. We levy taxes on productive enterprise in order to provide speculative opportunities to supposedly boost the economy. Income tax, sales tax, import tariff, property tax mostly on buildings, this sort of thing. The primary result of these taxes is to provide investment opportunities, but only for investments in which the location component of property value is a major component.

So now everybody's trying to invest in land, or some derivative of land value. Nobody's trying to invest in productive enterprise. The result is less productive enterprise and lower job opportunities and increasing unemployment.

The longer we try to support this idiotic program with deficit spending, the higher the national debt is going to rise, and the more unemployment we'll have.

Now, what if we tried to lower taxes on productive enterprise, such as income tax, sales tax, property tax on buildings, etc., and raise taxes on speculative investments such as location components of land values?

I suppose the first thing that would happen is that the "economy" as we know it would totally tank. The stock market, based, as it is, primarily on asset values (largely land values) owned by corporations, would plunge through the cellar. Investors would lose their shirts.

But the next thing that would happen is that the Phoenix would rise from the ashes. Productive enterprise, freed from burdensome taxes, would thrive. Land, if the location component were taxed adequately, would be nearly free to acquire initially, and the taxes paid on land would be no higher than the taxes currently paid on productive enterprise for the privilege of having your property values artificially jacked up.

Of course, by most currently popular measures, the "economy" would suffer horribly. Financial institutions who depend on loaning huge sums for land purchases would go broke. Real estate speculators would go broke. Everybody would have to go out and get real jobs for a change. But real jobs would be available.

Location components of land value are entirely the result of the doings of the community in general, not the doings of the individual owner, therefore it's only fair that the entire location value of land should be taken as tax for public benefit.

And it might even help reduce the national debt! But then again, maybe not. Maybe reducing the national debt is too much to ask.

1 comment:

Mark Wadsworth said...

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