Home / David W. Cooney / Justice, Fairness and Taxation Part Four

 

[Click on the following for parts I, II, III.]

I would like to wrap up this series with an examination of a few more types of taxation. Keep in mind, that this series is not intended to be exhaustive. It is intended to open the door to discussion by presenting ideas for consideration. I do not pretend to provide the definitive “Distributist view” on taxation. It is a complex topic and there can be legitimate differences of opinion while staying true to the idea of Distributism.

Inheritance Tax

Inheritance tax is another Keyensian method of wealth redistribution. It is based on the idea that a portion of the accumulated wealth of individuals needs to be redistributed through the government to those in greater need. It is, in my opinion, an excellent example of a society that takes a utilitarian view of its citizens. What else can explain the willingness to add to the grief of surviving relatives by making them pay for what they inherit from the one who died? Beyond that, there is not much difference between the inheritance tax and an income tax. The inheritance is treated as a special form of income and taxed at its own special rate.

Property Tax

The main problem I have with property tax as it is implemented here in the United States is that it actually negates the principle of ownership. I say this because, regardless of what it may say on the deed of title, you can be evicted from what is supposed to be your property for failure to pay the tax. In what way is this different from the early feudal period where the landlord could kick out the tenants for failure to pay the required tax? I can see none. Despite the fact that we claim to own our property, we are in fact nothing more than tenants with more rights to the property than renters.

Another problem with property taxes is that the government claims a revenue from that which it has not provided. John Médaille makes excellent points on the claim that a community can make on the value it has provided to the land, but the current practice of property taxes goes well beyond that. It also taxes the value provided by the individual or business as though the community has some natural claim to it. It is one thing to say that the presence of community has provided value to a piece of land and therefore the community can make a claim against that value; it is quite another thing to say that the community can make a claim against an increase value of your house on that land because you decided to improve it at your own expense.

These problems are the reason I cannot support property taxes as they are currently implemented. With these defects in place, I would personally prefer the sales tax.

Ground Rents

The idea of ground rents is very close to that of property tax. While I disagree with Henry George on the idea that land ownership should be socialized, I believe other aspects this idea solves the problems of property tax I mentioned above. Ground rents, unlike property taxes, do not lay any claim to the improvements an individual or business makes on the land. The value against which the community can lay claim is to the land as “unimproved,” and not against the buildings and other improvements because the community does not provide that value.

We must understand that the value of land is derived from two sources. While part of the land’s value is from the land itself, the community also provides value by its existence on and around the land. Two parcels of land may have the same productive value in absolute terms but, if one of them is located within a community where the product may be sold and where needed items may be purchased, the presence of that community provides a value to that parcel that is not present for the other. We can argue from this that the community has a legitimate claim on the value it gives to the land.

Where I personally disagree with Mr. George is his views against claims of title ownership of land. I do believe our current system needs to be reformed to inhibit many of the injustices which he points out, but land is a necessity not only for business, but also for living. I agree that all can make a legitimate claim to land on which to live and provide a living. I also believe that there is a legitimate dual claim of ownership by the community and the individual or business.

In the later medieval period, the idea of land ownership developed to the point where both the landlord and the resident peasant could truthfully claim a title to the same piece of land. They each had different rights to that land, but the peasant was a true owner and could not be evicted at the whim of the landlord as was the case in previous centuries. He could pass his title to the land to his spouse and children. He could sell it to another. He also had true ownership of the improvements (buildings) he added to the land. The exact nature of this is beyond the scope of this article, but I feel that this could provide the solution to the problems previously mentioned with other forms of taxation.

The land is of definite scope and the unimproved value provided by the community is not something which rapidly changes. Therefore, it can easily become the stable basis for determining the income of the government. As previously mentioned, the implementation of subsidiarity is likely to greatly reduce the tax burden. Because most government programs will become the responsibility of local organizations and governments, the local community will have more say in what programs the government will provide. We could simply look at the amount of land against which the local government has the authority to apply a ground rent at appropriate rates according to the value provided by the existence of the community. This would determine the funds available to government with much more accuracy than the current system. This improved accuracy combined with subsidiarity would make it easier for governments to make accurate budgets, and easier for the community to catch when government is spending irresponsibly and correct the problem.

Progressive Taxation

I believe there are legitimate points of justice in the arguments for and against progressive taxation. Progressive taxation is a tool to achieve a social end. Present implementations of progressive taxes are used to achieve wealth redistribution according to the Keyensian principle. I disagree with this. However, I agree with Hilaire Belloc that progressive taxation could (and should) be used to achieve the wider distribution of land ownership, to prevent the formation of large monopolistic companies and to disperse existing monopolies into locally owned small businesses. I know that there are those who will not like this idea, but Belloc points out that laws, including tax laws, are part of what brought about our current economic situation. We should not be surprised at the need to use the same tools to help accomplish the correction of that situation with a more just system. As long as the laws used are consistent with the end – if they do not violate the principles of justice advocated by Distributism – they may be considered legitimate.

 

About the author: David W. Cooney

 

David W. Cooney serves on the Editorial Board of The Distributist Review. His articles have appeared in Gilbert Magazine and he has also contributed to The Hound of Distributism, a book of various authors. Originally from Southern California, he now lives with his wife and two children in Western Washington state where he works as a network administrator.

 

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9 Comments

  1. This site is the best I’ve found for understanding money and basic economics but articles like this takes 10 steps backward. Money is not this magical thing that turns into houses and cars and food. Money directs labor and labor creates houses and cars and food.Money as an IOU for labor has been discussed on this site and this fact must be the starting point for all discussions. Saying that taxes redistribute money to those in greater need implies money as this magical thing. Taxes direct labor according to a democratic process which hopefully directs labor for the common good.In years past in an un-democratic process taxes directed labor to build palaces which are not a common good.To much accumulated wealth causes two problems; either directing labor to build palaces or not directing labor at all (not spending money). Taxes within a democratic process does two things: first, taxes direct labor to do something (versus money that would not be spent and therefore not direct labor); second, taxes direct labor to do things other than build palaces. It is no coincidence that our increased standard of living coincides with democracy and taxes. Capitalism gets far to much credit. To end my babbling I will say in the US 150 million people work (labor) every day. Money directs that labor. Money not being spent (accumulated wealth by the few) causes labor to be idle.Distributionism is another way, other than taxes, to direct labor consistently (less accumulated wealth)for the common good.

  2. David W. Cooney

    Dorschner,
    Thank you for your input. I don’t know where you think I advocate the idea of money being a magical thing that turns into houses or anything else. This article is about methods of taxation and the fact that taxes are collected to fund some goal to be met by government. I apologize if this article did not discuss these concepts sufficiently, but I did not intend to discuss how taxes, once collected, are employed to meet those goals.

    Money is not just an IOU for labor, it is also an IOU representing wealth. Yes, it is true that many factors of exchange can be reduced to exchanging one labor for another, but that is not always the case. Things have value based on common estimation, fads and many other factors. The labor expended in making a Beanie Baby toy today is not less than it was when they were selling for a lot more. My car has value apart from the labor expended in producing it, but it is not valued nearly as much as a 1936 Rolls Royce Silver Cloud in similar condition.

    Our increased standard of living can be credited to technology, but not to democracy. To begin with, the technology was not developed within democratic societies, but in mainly republics. I know it is fashionable these days to equate republics with democracy, but they are actually different and it doesn’t help to pretend otherwise. Democracy is “one man one vote.” Republic is “thousands of men, one vote.” Even if our representatives are elected by a democratic method, it does not make our government a democracy. If our taxes and other laws were made on a democratic basis, Obamacare would not have become law.

    And this returns me to the actual point of the article – the fact that taxes are collected to fulfill functions of government and there are different methods of taxing that need to be considered. However, you cannot escape the fact that taxes redistribute wealth. The question is for what purpose should it do so and what methods of taxation should we accept.

  3. I expected your response and deserved your critique. Expressing thoughts that make sense to others is very difficult for me. My problem is not the article as intended but how it will be interpreted by the majority of Americans. In todays climate the response will be “I hate taxes too” even though that is not the response you want. I didn’t have this feeling with parts I,II,and III. The vast majority view money as a new car or a steak dinner instead of money as a directive for labor to make me a new car or steak dinner. People will view articles about money or the economy with this magical idea of money. The wealthiest 400 people have IOU’s (money) for 24 million years of labor (calculated at $50,000 per year, the US average). The only way anyone can sanely say its just for 400 people to control 24 million years of labor is to view money as magic. Its their 24 million years of labor they earned it doesn’t sound as moral as its their money they earned it. Distributionists promote, in my view, an equitable trade of ones labor for another.
    You describe wealth differently and I do not disagree but most people understand wealth as the accumulation of money. So that is the definition I refer to.
    I do not agree with your statement “Our increased standard of living can be credited to technology, but not to democracy.” I agree technology can increase standard of living. The question is for whom. Democracy has allowed technology to increase the standard of living for the masses not just the few.

    Your last point “However, you cannot escape the fact that taxes redistribute wealth. The question is for what purpose should it do so and what methods of taxation should we accept” focuses on negatives. My point is that taxes actually help the economy by putting otherwise idle money (labor) to work. A Democracy at least tries to use money for the common good. You can’t keep taking money out of the economy and expect it to keep going as usual. The problem with the rich is all that money not being spent. As one Nobel economist said “tax the hell out of them”. That is until a more Distributist economy reduces the need for taxes to put money back in the economy because wealth will be distributed more widely.

    As you can see I’m really stuck on seeing the economy as labor instead of money. Taxes for me is just another way to direct labor.
    Thanks for your input and ideas Mr. Cooney.

  4. David W. Cooney

    Dorschner,
    In any conversation, there will be misunderstandings and misstatements. That’s the nature of the game. I also misstated my own position regarding Democracy. It is true that Democracy can try to act toward the common good, however, it can also be the worst of tyrannies, worse than any other form of government because it has this farcical claim to be acting on “the will of the people.” This is a farce because it is merely the will of the mob. It is frequently not even the will of the majority, but merely the will of the majority of those who voted.

    While it’s doubtful that any government has ever lived up to its ideal, some of the medieval monarchies were much more democratic societies than ours is today. Regardless, ours is not a Democracy and our laws and taxes are not established on a democratic basis. I stick by my claim that our increased standard of living cannot be credited to Democracy, or even to the fact that we live in a Republic.

    What constitutes our increased standard of living over times past? It certainly isn’t freedom, because there are many ways in which we are less free today than our ancestors were when this country was founded, and even 600 years ago under monarchies. Those things which I believe the public views as our increased standard of living are the conveniences we now have that did not exist in the past. Those conveniences are the result of technological developments which did not occur because we live in a capitalist republic, and could have occurred in a distributist society regardless of the form of government.

    You state that “Democracy at least tries to use the money for the common good,” and that “Democracy has allowed technology to increase the standard of living for the masses, not just the few.” I’m sorry, but I disagree. Whether or not government tries to do anything for the common good has nothing to do with Democracy, it has to do with the existence of a common philosophical and moral view of what constitutes the common good. This is something we are rapidly losing in our society. You must also remember that monarchies existed in many different eras and with different standards. The monarchy of ancient Rome was far different than those toward the end of the Middle Ages. The monarchies of the Renaissance and Enlightenment had returned to the more Roman model. The principle of governments acting for and protecting the common good were defined to their greatest precision during the middle ages and were applied during that time. It is a mistake to paint all monarchies as tyrants who failed to act for the common good.

    This has gotten off-topic. Any form of government can act for the common good or fail to do so. This is completely apart from the question of how the government funds its functions, or the view of what those functions should be, which was the main topic of the article.

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  6. Were talking semantics instead of specifics. I’m pretty simple I see city, county, state, and federal government with thousands of people rotating in and out of office. As compared to a ruling elite we are democratic. I look around in my community and see libraries, parks, schools, police and fire stations,rules and regulations, snow removal, transportation, social programs, city counsels, ect. On an average income my family of 7 lives a darn good life.I totally agree that money and power corrupt this process. So limiting how much money individuals or corporations control is a good thing. For them and everyone else. Its not that I disagree with your ideals but with your current solutions. Revamping our entire political and economic system is not going to happen. We can take baby steps though, toward that goal, by using taxing and regulation. Whether or not I agree with the entire Distributist thought we can agree on many things. I wish you would advocate more for changes we can make under our current systems. Changing how we tax may be a good thing but it does nothing to change attitudes.
    My wife is in social work and she sometimes questions the many programs out there. My question to her and everyone is; If you don’t want that labor being expended on social programs what do you want that labor to do? Build mansions, sit idle, build you a new car, what? I produce milk, technology has increased such that one labor hour can produce 3 times more finished product than in the past. That leaves two labor hours that can be directed to do something else. Technology not only increases our standard of living by the increase in efficiency of producing milk but also by freeing up labor to do something else. The general publics standard of living increases only if that extra two hours of labor is used to the benefit of everyone verses to the benefit of the few.
    How those extra labor ours are directed makes all the difference. Fair wages will direct those labor hours by the people who earn the wages, taxes will direct those labor hours by government, or the accumulation of money will direct those labor hours for the benefit of the few. My problem is that those labor hours gained through technology are increasingly being used to pamper the few. Those labor hours being used to make porn movies is also a different problem. We are on the same page Mr. Cooney I just would like you to advocate more for immediate change under our current system with an eye toward changing the system.

  7. Since recently getting involved in understanding economics I have read many articles from all sides. I have gravitated to this site. Nothing compares to understanding what I personally think like writing out my thoughts. I am grateful for the opportunity.

  8. David W. Cooney

    Dorschner,
    I disagree that we do not have a ruling elite today. Unless you are discussing a local office, which does practically nothing, the only people who can get elected are those who win the approval of one of the two political machines. Oh, there may be the occasional exception, but it is true for the vast majority of candidates. Yes, the rules allow for you or I to be president, but that is not the reality. If you don’t come from the right family or have a particular background or schmooze with the right people, you have no chance. The phrase “ruling elite” also fits their attitude toward their “democratic” jobs as well. As far as having thousands rotating in and out of office, take a look at the tenure of many federal senators and representatives. I’m sorry, but our system is not democratic and it is not necessarily better. A bunch of elected people who consider themselves above the common man are no better than a single one, and that is what we have now.

    In regard to the different government jobs you mention, why would these not be fulfilled under a different form of government? Many of them used to be. For things like social programs, they may not have been run by the government, but monarchs used to contribute large sums to them. The question is not whether these programs should exist, but who should be running them. If it is appropriate for government, what level of government?

    You keep talking about taxes as though they remedy the problem of wealth that sits idle. That is not true because our largest tax is income tax. In other words, it is a tax on active wealth. Bill Gates is worth over $5 billion, but the only portion of that which is taxed by the federal government is that which he puts to use. If he earns an income from it. If he did nothing with that money, he would pay no tax on it at all because he would have no income from it.

    You say that our goals cannot be realized. You may be right, but I believe in the possibility and so I will continue to work toward that. I advocate the restructuring of the way our government works because the way it currently works is inefficient and unjust. I support many of the programs you listed, but not at the federal level and there is no reason for them to be funded or managed at the federal level beyond the accumulation and concentration of power. Decentralizing this funding and power would be a far more democratic thing than maintaining what we currently have.

  9. Very good Mr. Cooney, I can’t disagree at all. For me to agree with you on the specific solutions will require me to gain more knowledge. I will keep reading. As far as the only taxing income part, you have given me something specific to think about.

    Things can get very complicated so I do two things: break it down to its simplest components and go from there, and apply extremes to better understand the middle. People work (labor)or not work and somebody organizes that labor, capitalism organizes, government organizes, or people organize for themselves. I work and get money, I trade that money for other peoples work (in other words I direct labor). I can save up that money and get other peoples work in the future. When I read an article I try and apply concepts to these simple components.
    Again, I will keep reading.