Let’s call ‘taxing the rich’ what it really is: Theft

Picture of New Zealand's richest man. Guaranteed a reaction
 against his success by a certain sort of commentator ...

EVERY SO OFTEN A PIECE of dross comes over my monitor that just cries out to be fisked. Like this rant against the latest NBR Rich List by someone called Dr Neal Curtis. His piece argues that "as society groans under the weight of wealth inequality" (can you hear the groans, readers?) there should be a "different slogan to ‘tax the rich'." The one he favours: "reclaim the wealth'."

Yes, he's an ultra-redistributionist. Aka, a thief. Walter Williams knows the type:

Dr Curtis's piece is of course a reaction to publication of the NBR Rich List, which without fail gets a certain sort of person to hyperventilate.

Dr Curtis is that sort of person.

And this screed vomiting forth at Newsroom is the result.

Dr Curtis, by the way, is said by his bio to be "a comics scholar and critical theorist with wide-ranging interests." Lead item on his Areas of Expertise is: Comics. So let's just call him Mr Curtis.

MR CURTIS BGINS: THIS Government, he says, is "gutting government departments and cutting public services."

I wish this were true instead of comical. (Spending is now higher under Nicola Willis than under Grant Robertson. Full-time employees under the Luxon Government was 64,222 when elected, and is now 63,238. There have been cuts, it's true, but none anywhere near as big as I would hope.)

But his beginning is only a drive-by to pass off his credentials. Three paragraphs in we get to the meat. So it's here that I'll begin my fisking.

MR CURTIS: [There are] three central assumptions of current economic dogma that those who question are branded as ‘radical leftists.’ These assumptions are underpinned by the beliefs that wealth trickles down; deregulation is good for business; and the state should stay out of the market and everything should be privatised.

Should I cry "strawman" this early in the piece? Each of these pieces of alleged dogma is both fly-blown and overblown. No-one outside a piss-poor public-choice lecture would anyone say everything should be privatised. (Courts? Police? Army?) And no-one anywhere advocates so-called "trickle-down." His point here is not to make sense, however, it's simply to damn the rich so he can later advocate their being eaten.

So he ploughs on regardless, challenging each of the assertions he's just straw-manned. Like his logic, let's looks at each of them in reverse.

MR CURTIS: ...the state has always been an economic entrepreneur funding all kinds of technological innovation, such as the internet, but this often goes unreported in the dominant economic journalism.

"Always" is doing a lot of work here. There's a reason so much government entrepreneurialism goes unreported in any economic journalism: it's because it's so rare. Sure, the government defence project ARPANET linking dozens of people was transformed into something that now links five billion. But that wasn't a Ministry of Doing Shit that did that. It was private entrepreneurs who turned the great idea into a GREAT IDEA. 

MR CURTIS: ... seen from a purely corporate perspective deregulation is no doubt a path to profit. However, it is also socially disastrous as costs of deregulation are outsourced via public bailouts following financial crises, for example, that are directly caused by the rolling back of legislation designed to safeguard the wider economy.

Without going too much further than this one paragraph (though we can if you wish), let us agree that there is more than one kind of deregulation. There is the kind that mandates safety and (may) safeguard the wider economy. There is regulation that protects intellectual and real property, and that allows for the enforcement of contracts. And then there is regulation about how curved a banana should be, or how far apart hairdressing salon seats should be. You'll notice how carefully Mr Curtis conflates these. And why.

MR CURTIS: ... wealth, especially when given away in tax cuts, does not trickle down. It stays at the top. Ever-increasing wealth inequality as measured by the Gini coefficient or any study of income trends show this.

Now, it's Mr Curtis who insists this to be economic dogma, i.e., that wealth "trickles down." Yet the author of Basic Economics,  Thomas Sowell, insists that there is no-one anywhere outside a lunatic asylum or a comics convention who holds it to be true, let alone as dogma.

Years ago [writes Sowell, I] challenged anybody to quote any economist outside of an insane asylum who had ever advocated this “trickle-down” theory. Some readers said that somebody said that somebody else had advocated a “trickle-down” policy. They could never name that somebody else and quote them, though.

[Mr Curtis] is by no means the first [person] to denounce this nonexistent theory. Back in 2008, presidential candidate Barack Obama attacked what he called “an economic philosophy” that “says we should give more and more to those with the most and hope that prosperity trickles down to everyone else.”

Let’s do something completely unexpected: Let’s stop and think. Why would anyone advocate that we “give” something to A in hopes that it would trickle down to B? Why in the world would any sane person not give it to B and cut out the middleman? All this is moot, however, because there was no trickle-down theory about giving something to anybody in the first place. 

Sowell wrote a whole book exposing the nonsense of those who believe this trickle-down fantasy. [It's free, you can DOWNLOAD IT HERE.] And as I've pointed out myself on occasion, if there is a trickle-down system in operation it's the one whereby large gobs of your own money are taken from you by government, and trickled back down to you in the form of favours, and subsidies and social welfare for working families and the like.

There is an argument however for having capitalists keep their own capital, however— an economic argument, as well as the strictly-speaking moral argument that it's their goddamn money. Mr Curtis et al would like to think that if the "one percent's" capital were not stripped from them it would perhaps be baked into pies or used to light cigars—or would be emptied into money bins so that, like Scrooge McDuck, the owner of capital can spend his time rolling around in it.

This is truly a comic-book version of reality that only one ignorant of the division of labour could hold. 

Because, as George Reisman explains,  the vast majority of the wealth owned by the so-called “one-percent” is not held in the form of chocolate bars or champagne bottles or pies, but in the form of the capital goods and equipment that produce the consumer goods on which we (and Mr Curtis) all depend—capital goods that only come to represent wealth to the extent they are used to produce the goods and services people, in their capacity as consumers, really want. Per-Olof Samuelsson observes: 

"The productive rich (think Rockefeller, Carnegie, Ford, Bill Gates, Steve Jobs, etcetera, etcetera) actually flood the rest of us with wealth (and themselves become wealthy in the process). Taxing or expropriating them simply means to dam this flood. And this may make it appear 'trickle-down'— because governments and politicians will only allow a small portion of this wealth to trickle down to us; the rest of it lands in their own pockets."

Many of the wealthiest people on earth hold their wealth in the form of a financial asset, like stock in a successful company. And the very wealthiest have no time to swim in cartoon-style money bins because they're also successfully running these companies.

[Mr Curtis and his readers] have no awareness of this, because they see the world through an intellectual lens that is inappropriate to life under capitalism and its market economy. They see a world, still present in some places, and present everywhere a few centuries ago, of self-sufficient farm families, each producing for its own consumption and having no essential connection to markets.
    In such a world, if one sees a farmer’s field, or his barn, or plough, or draft animals, and asks who do these means of production serve, the answer is the farmer and his family, and no one else. In such a world, apart from the receipt of occasional charity from the owners, those who are not owners of means of production cannot benefit from means of production unless and until they themselves somehow become owners of means of production. They cannot benefit from other people’s means of production except by inheriting them or by seizing them.

But in the modern world (at least, to the extent that the so-called “one-percent” are not simply milking government subsidies and bailouts, which is how so many seem to think business should work), all of us benefit from the private ownership of their means of production whoever owns them—just as long as the owners are left free to produce and innovate. We all get the benefit of their production, both as buyers of the products of those means of production, but also as sellers of labour employed to work with those means of production.

The wealth of the capitalists, in other words, is the source both of the supply of products that non-owners of the means of production buy and of the demand for the labour that non-owners of the means of production sell. It follows that the larger the number and greater the wealth of the capitalists, the greater is both the supply of products and the demand for labor, and thus the lower are prices and the higher are wages, i.e., the higher is the standard of living of everyone. Nothing is more to the self-interest of the average person than to live in a society that is filled with multi-billionaire capitalists and their corporations, all busy using their vast wealth to produce the products he buys and to compete for the labour he sells.
    Nevertheless, the world [Mr Curtis and his readers] yearn for is a world from which the billionaire capitalists and their corporations have been banished, replaced by small, poor producers, who would not be significantly richer than they themselves are, which is to say, impoverished. They expect that in a world of such producers, producers who lack the capital required to produce very much of anything, let alone carry on the mass production of the technologically advanced products of modern capitalism, they will somehow be economically better off than they are now. Obviously, [they] could not be more deluded.

AND IT'S NOW, WITH HIS three dogmas exposed, that we can see Mr Curtis's error more plainly. Like many who are branded as "radical leftists," not only is there an inherent wish to damn the rich, all of them, there is also a paucity of understanding of how the deserving rich got that way. 

Yes, there is more than one way to get rich. One may pull favours and subsidies from government, as cronies all try to, or one may be the government and sell Shitcoins (as one particularly egregious entity is currently doing). Or one may sit tight and rely on central banks inflating monetary assets (what is often called the Cantillon Effect, after the eighteenth-century ex-banker who called attention to this phenomenon of long-term capital consumption). But neither of those examples is any more than short-term, and no amount of short-term skimming is going to get you to the top of even a New Zealand rich list.

Even in this small pond, it does take an entrepreneur risking his or her own capital to really roll in the big returns.

Mr Curtis would like you to conflate all three, as he proceeds to draw his conclusion.

But first, his corollary: that it is government spending that makes us all rich. Mr Curtis phrases it this way.

MR CURTIS: All this [leaving capital in the hands of its owners] results in top-heavy, financially starved economies as governments continually try to make the wealth giveaways fit into a budget by stripping support for public services or selling off public assets at knockdown prices. ...
    The fact that the global economic outlook as well as specific national economies remain so fragile and unstable ... is surely enough evidence that the principle of continually moving wealth upwards doesn’t work...

He really does think that money in the hands of government grows economies, whereas money in the hands of those who made it simply squanders it. 

It's deluded.

And sure enough, having made his three points of alleged dogma, and delivered his corollary, he gets to start eating his meat. 

MR CURTIS: Just as there is no economic justification for structuring an economy in which only the very wealthy are the true beneficiaries, there is also no moral justification.... As our society is placed under increased stresses and strains beneath the extreme weight of amassed, socially useless wealth that sits with a very small class of people, there have been increased calls to tax the rich.

Mr Curtis is, of course, in favour. And now, bringing together what passes for his argument, is his payoff:

MR CURTIS: Instead of a call to ‘tax the rich’, the call should be to ‘reclaim the wealth’. I believe this phrase more adequately represents the request to return a greater share of what was commonly created. It is also a call to give back even just a small amount of what was taken through the design of an economy knowingly and carefully organised to purposefully benefit the few.

You can see his own dogma peering out from under his comical version of how an economic system works:

"Commonly created."

"Give back."

"Reclaim."

One question should be enough to puncture the deceit, and with it we return to Walter Williams at the top of this post. The question is: Who created this wealth?

Nick Mowbray is an almost perfect example here. 

The wealth represented by Mr Mowbray's Zuru Toys quite literally did not exist before Mr Mowbray created Zuru's toys. Pre-Mowbray, there was a pile of stuff. Post-Mowbray and his identification of the value to human beings to be delivered by his toys, there's enough value in them to make him this county's richest man.

I know that can be hard to get your head around, but there it is. Value, in the economic sense, is in the eye of the consumer. Consumers' "vote" every day, with their own hard-earned money on their devices, for Zuru's toys creates a socially-objective price for Mr Mowbray's offerings, and allows him to grow his capital. Which he can then use to create more toys, which creates more capital, which .....

All going well, especially if you like children's toys, that's a life-enhancing spiral that costs no-one else anything.

LET'S NOT BOTHER TOO MUCH to investigate further into the mind of someone who would despise that.

Let's ask instead only what they're trying to achieve. For. Mr Curtis, here's his payoff here, he hopes (now with an added noteto identify his errors:

MR CURTIS: As our society is placed under increased stresses and strains beneath the extreme weight of amassed, socially useless wealth [sic] that sits with a very small class of people, there have been increased calls to tax the rich.

I love the use of the passive verb: "there have been calls..." instead of "I and my colleagues have been demanding..." 

MR CURTIS: In keeping with the dogma [sic], conservative supporters have made tax a dirty word [I wish! -Ed.]. Rather than tax being an individual or corporate contribution to the maintenance of a functioning society, the corporatist right has over the past four decades tried to make it a synonym for theft [I wish - Ed.]. The idea that taxing the rich is really a form of theft also makes it easy for the dogmatists [sic] to present the call as a form of envy; a petty resentment of the successful.

And isn't it envy? Envy, for example, that one person making toys that delight people will earn more in his lifetime than someone with pretensions to intelligence making his living from analysing comic books and posting snide articles on a web page. The envy fair oozes out this piece, and other similar rants by the usual suspects.

MR CURTIS: Instead of a call to ‘tax the rich’, the call should be to ‘reclaim the wealth.

Ah. Here we go: an all-but explicit claim from the mire that "you didn't build that." Which in the next sentence is made explicit:

MR CURTIS: I believe this phrase more adequately represents the request to return a greater share of what was commonly created.

So, in what will no doubt be a surprise to Messrs Mowbray, Hart et al, everybody created the toys for which the world is clamouring, the companies made more efficient, the plastics that store food better, the films that folk queue up for ... We all did it, he claims.

In the end, after all the verbage, that's his major claim. That we made it—an absurdity—so therefore we should keep it. A nonsense.

It is also a call to give back [sic] even just a small amount of what was taken [sic] through the design of an economy knowingly and carefully organised to purposefully benefit the few.

The irony is that, if Mr Curtis lifted his head from his comic books and looked properly at the world around him and at the division-of-labour system that allows even sad sacks like himself to survive and even flourish, he'd understand that (even imperfectly) it already is benefitting all of us.

If there's one benefit of watching a US president tearing down everything that made his own country prosperous, it's that his many political enemies are slowly discovering this truth.  

Many are discovering anew that it is actually poverty that is mankind’s natural state, that it is past wealth production (not redistribution) that has been rescuing people from poverty worldwide in ever-expanding numbers—the great (but almost unheard) story of our era that allows today's worker more easily-available health, wealth, and luxuries than even a king enjoyed in all previous centuries—and that efforts to simply legislate higher wages by law amounts to little more than a “loot and plunder” approach to economics.

The fundamental policy tools of statist politicians [explains George Reisman] are clubs, guns, and prisons... What allows statist politicians to conceal the fact that they’re thugs is the belief that they have a special account with Santa Claus. As though Santa Claus, rather than extortion, were the source of the funds extorted by the politicians.
The statist politicians and the leftist “intellectuals” dismiss the teachings of sound economics by calling it “trickle down.” They do not allow themselves to see that their theory of economics is the loot and plunder theory.

Some have realised and reconsidered. I invite Mr Curtis to consider it too.

PS: Mr and Mrs Marx were at least fully aware of how envy towards the rich is a psychological problem, not an philosophical—or economic—one. Writing to their "embittered" son after yet another tantrum at the world, Heinrich Marx said:

Frankly speaking, my dear Karl, I do not like this modern word, which all weaklings use to cloak their feelings when they quarrel with the world because they do not possess, without labour or trouble, well-furnished palaces with vast sums of money and elegant carriages. This embitterment disgusts me and you are the last person from whom I would expect it. What grounds can you have for it? Has not everything smiled on you ever since your cradle? Has not nature endowed you with magnificent talents? Have not your parents lavished affection on you? Have you ever up to now been unable to satisfy your reasonable wishes? And have you not carried away in the most incomprehensible fashion the heart of a girl whom thousands envy you? Yet the first untoward event, the first disappointed wish, evokes embitterment! Is that strength? Is that a manly character?

Is it? 

Fisking a land-tax looney

 

I argued Tuesday that any land tax introduced however presently circumscribed will see the shackles come off bit by bit until it there willl be no escape from the grey ones for any land-owner (When they came for foreign land-owners …”).

Already, not less than twenty-four hours after the trial balloon was afloat Gareth Bloody Morgan had already started blowing his own trumpet for the across-the-bloody-board imposition of the ten percent (or more) land tax on every single land owner in the country. (Not caring what this would do to cash-flow poors land-owners; or what it would do to the valuation of land if its entire income stream were ripped away.)

And not just land – Bloody Morgan wants the tax on land, on houses, on every bit of capital than anyone owns anywhere the government can get its hands on.

Just another reason for someone to slit that insuferrable bastard’s throat.

Few supporters of the tax care either for the economics or the morality. They have their own reasons for wanting land owners cut down. Here below is an ilustration of just how the land tax idea ia already being embraced by those who’d lke to widen the scope immiediately to give “the rich” a good kicking. Not to pick on this particular author per se, (but his intials are SP, and if he’s in for a penny…).

Just to make it easy, I’ve fisked it for you [his comments are in italics, my own are preceded by the ‘|’]:

Land tax is something I've loved for a long time…

| Loved! What sort of person “loves” a tax!

… and although a half assed one won't be enough it would be an amazing start that could be improved in future.

| By “won’t be enough” he means it’s not just foreign home owners he blames for high house prices, and by “improved” he he means “used to smack more people around.”

It doesn't sound sexy but it is awesome.

| “Awesome”?! I don’t know about you, but all this enthusiasm for a new form of legalised theft is already making me ill.

The point of a land tax is that it encourages investment in productive assets, like businesses that export goods, rather than houses, and makes people change their housing choices.

| Well, one sure and very immediate point will be that it will certainly discourage folk owning rental properties (especially if virtually all their rents are stripped from them) so that almost-affordable house renting, virtually the only almost-affordable thing about NZ’s big cities at the moment, will at a stroke be made as unaffordable as house buying. (How else would rental investors make any yield at all, or try to?)

By nature it has to be disruptive. It would make elderly people in big houses in leafy suburbs have to downsize. In theory they would move to nice smaller apartments nearby, but seeing they have fought against any kind of sensible density they will be out of luck.
So that'll be a shit-fight.

| You can almost see his hands rubbing togther as he looks forward to seeing old folk have to leave their family homes because they don’t have the incomes to sustain the level of tax that would be viciously levied upon them.

If universally applied it would halt land-banking, and spur efficient land use, it'd free up capital for productive industries, it'd mean being born asset-rich didn't just compound wealth and lock others out. It won't be that for a while, but there is some hope.

| Would it halt so-called “land-banking”? Well, no it wouldn’t: the predominant “land-banks” lie just outside the planners’ artificial ring-fences around our cities, where land can be bought for around one-tenth of the price of the same land just inside the ring-fence, and owners of this land could still wait just as patiently (and affordably) for the planners to rezone – whereupon they either sell or develop. There is no new “spur” in the newl-floated new tax just as there is no class in NZ born so “asset-rich” that it simply sits on bare land for generations simply for the sake of it. It’s just a class warrior’s pipe dream.
    If our envy-ridden commentator could remove his green-eyed lenses for a moment he might realise that even with the existing holding costs of empty land, you're only going to keep it empty if there's a huge windfall profit at the end of it – and with all New Zealand's major cities ring-fenced by zoning there's an assured bonus if he can just sit tight until the zoning changes (or if he can wine and dine the planners and councillors and encourage them to change it).
    He might understand that the biggest spur to freeing up these “land banks” and ridding us of this cronyism would not be the introduction of another form of legalised theft, but a simple removal of the planners’ ring-fence.

There's the saying only Nixon can go to China. In that same way only the party of landowners can introduce Capital Gains Taxes or land taxes. If National does manage to get a land tax in, in addition to the piss-weak CGT it introduced, then future governments can extend them until properly useful.
Fingers crossed.

And, sadly, what is described is both the modus operandi of this nutless National Government (ably described in yesterday's Herald by the otherwise loathsome Bryan Gould, who this time is almost wholly on the money)), and the certain long-term consequence of the land tax. There is nothing surer than that the inevitable consequence of this circumscribed tax is its extension by either this or subsequent government.

Danyl at The Dim Post is already talking up the opportunity”"::

It sometimes feels to me like Key and English realise they’ve done a pretty shitty job at modernising our economy so they’ve set up freebie policies for the subsequent left-wing government. There’s the capital gains tax on property sales within two years, which can be kicked up to ten years, and now it looks like there will be a land tax for foreign owners, which can easily be adapted to a land tax on undeveloped properties in urban areas (land banks), or even single owner-occupier properties in suburbs like, say, Remuera, to encourage the development of apartment buildings.

Could anything be more certain?

Could anything be more wrong.

RELATED POSTS:

• Spare a thought for Queensland property owners, who were hit with a retrospective land tax going back to June 30, 2002 – along with a redefinition of "unimproved" to include “the hard work of property owners, including (among other things) the buildings they have erected, the leases they have in place, business goodwill and infrastructure charges.” Would you rule out any of that happening here?
  `Retrospective land tax to hit Queensland property investors – PROPERTY TALK
• “The best solution to our housing affordability woes and associated unintended consequences, such as an epidemic of ultra-long commutes from rural towns to jobs in the unaffordable city, would involve a few new towns like “The Woodlands” springing up in the superabundant stretches of undeveloped land with which NZ (one of the world’s most lightly populated countries) is blessed. The existence of these highly competitive alternatives – for both home buyers and businesses (hence the excellent jobs-housing balance) – would soon take the pressure off the market in the existing cities, strangled as they are by NIMBYism as well as misguided planning.
      “Planned ‘releases of land’ however for a specific 10,000+ new homes per year in highly specific locations, could be a failure as a “housing affordability” policy per se. When we analyse previous housing bubbles and crashes around the world, we find that the most volatile ones are those in which the price inflation was accompanied by frantic amounts of building. This seemingly contradictory combination is the result of insufficient market freedom to convert cheap rural land to urban use without its original owners holding out for ‘planning gain’.”
  Will the Housing Accord cure the land banks? – Phil Hayward, NOT PC, 2013
• “Which means in order to make a purchase, developers will have to offer land owners an amount greater than the
  "present value" of what the land owner thinks the value might reach if he holds the land. And every developer has to out-bid every other developer for the parcels that might go on the market.  Meanwhile, the rising prices paid by developers feed heightened expectations on the part of the remaining land owners. And so it goes on like a nuclear chain reaction, blowing up this time in the face of would-be affordable-home owners.
      “And as with a nuclear chain reaction, it is impossible to have "just a little, harmless explosion." Urban planners need to understand that an Urban Growth Boundary does not cause a little, harmless explosion in greenfields land values.”
  How do you stop land banking? – Phil Hayward, NOT PC, 2013
• “Most of the planners in New Zealand's major cities have imposed what's called a Metropolitan Urban Limit around the cities. This is sometimes called an 'urban fence,' inside which development proceeds (in theory) according to the planners' whims, and (in reality) to the extent that developers and builders can get around these whims and get something done.
      “Outside the urban fence, development only proceeds to the extent that land-owners outside the fence can dodge the planners' desire to make a rural museum of the area surrounding the cities, and to the extent that developers who have built up land banks around the city can encourage their chums on council to relax the zoning, or to release the urban fence just a little. You might call this a sort of 'informal' public-private partnership. (Ask around, for instance, about how the car yards of Henderson were re-zoned from rural and who benefited most from the re-zoning; and -- more recently -- ask yourself who the major beneficiaries were of the recent relaxation of controls around Botany, Flat Bush and Albany.)…”
  Message to planners: "Don't fence me in!" - NOT PC, 2007
  .

“A tax on the value of a site is really a tax on productive potential”

 

John Key’s proposed land tax would take money out of the hands of would-be home builders at precisely the time when more homes need to be built. The godfather of land taxes was a fellow called Henry George, who it’s fair to say was single-minded on the topic. (Ahem.)  In his bio of Henry George in The Concise Encyclopedia of Economics, economist Charles Hooper makes this very criticism of the idea:

George was right that other taxes may have stronger disincentives, but economists now recognise that the single land tax is not innocent, either. Site values are created, not intrinsic. Why else would land in Tokyo be worth so much more than land in Mississippi? A tax on the value of a site is really a tax on productive potential, which is a result of improvements to land in the area. Henry George's proposed tax on one piece of land is, in effect, based on the improvements made to the neighboring land.
    And what if you are your "neighbour"? What if you buy a large expanse of land and raise the value of one portion of it by improving the surrounding land. Then you are taxed based on your improvements. This is not far-fetched. It is precisely what the Disney Corporation did in Florida. Disney bought up large amounts of land around the area where it planned to build Disney World, and then made this surrounding land more valuable by building Disney World. Had George's single tax on land been in existence, Disney might never have made the investment. So, contrary to George's reasoning, even a tax on unimproved land reduces incentives. [Emphasis mine.]

I’ll let you work out for yourself the incentives for large, staged subdivision developments…of precisely the sort the Productivity Commission argues is necessary to help bring down the cost of producing new houses.

[Hat tip David R. Henderson]

RELATED POSTS:

• The Land Tax “suffers from a much more fundamental flaw.  Namely: A tax on the unimproved value of land distorts the incentive to search for new land and better uses of existing land.  If we actually imposed a 100% tax on the unimproved value of land, any incentive to search would disappear…
      “Take a real estate developer.  One of his main functions is to find valuable new ways to use existing land.  ‘This would be a great place for a new housing development.’  ‘This would be a perfect location for a Chinese restaurant.  And so on… ‘Information about the land can be considered an improvement in its own right. Some of the land's qualities have very low search costs to discover: is it arable, will it support any type of building, is it in the middle of a city or rural area, etc. Discovery of other potential uses may require significant search and/or investment in other technologies. An entrepreneur brings these qualities to market - they do not bring themselves. Until he does so, the value of the land is undefined.’”
  A Search-Theoretic Critique of [Land Tax] – Bryan Caplan, ECON LOG
• “He’s now suggesting another way to put the grey ones’s hands in your pockets: a land tax on non-NZers and NZers living overseas. A land tax said to be around ten percent of the land’s value, payable every year. A land tax payable by owners out of their income on the value of their asset. A tax that will undoubtedly require a whole new army of assessors to value these ever-rising assets. A tax imposed on land owners as a xenophobic political sop instead of acknowledging the government policies that have made land in NZ far, far too expensive.”
  John Key finds another new tax – NOT PC
• “[Land] taxers claim that the tax could not possibly have any ill effects; that it could not hamper production because the site is already God-given, and man does not have to produce it; that, therefore, taxing the earnings from a site could not restrict production, as do all other taxes. This claim rests on a fundamental assumption — the hard core of [land]-tax doctrine: Since the site-owner performs no productive service he is, therefore, a parasite and an exploiter, and so taxing 100 percent of his income could not hamper production.
      “But this assumption is totally false. The owner of land does perform a very valuable productive service, a service completely separate from that of the man who builds on, and improves, the land. The site owner brings sites into use and allocates them to the most productive user. He can only earn the highest ground rents from his land by allocating the site to those users and uses that will satisfy the consumers in the best possible way. We have seen already that the site owner must decide whether or not to work a plot of land or keep it idle. He must also decide which use the land will best satisfy. In doing so, he also ensures that each use is situated on its most productive location. A single tax would utterly destroy the market's important job of supplying efficient locations for all man's productive activities, and the efficient use of available land.”
  The [Land] Tax: Economic and Moral Implications – Murray Rothbard, MISES DAILY, 2011

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John Key finds another new tax - #LandTax

 

"Some experts have declared that it is necessary to tax
the people until it hurts. I disagree with these sadists."
~ Ludwig Von Mises, from his essay ‘Defense, Controls, and Inflation’

For a Prime Minisister elected on a platform of “no new taxes,” your ever-popular leader has been very good at discovering new ways to steal from you:

• GST increase from 12.5% to 15%
• GST on items purchased online from overseas
• Capital gains tax on houses sold after owning for less than two years
• Increased taxes on KiwiSaver
• The 2012 ‘Paperboy’ tax
• Civil Aviation Authority fees increase
• Additional fuel tax increase of 9 cents with annual CPI increases locked in for perpetuity
• Road User Charges increased
• Massive ACC levy increases
• New online company filing fees
• Creeping expansion of the scope of Fringe Benefit Taxes; and, most recently
• the so-called "Netflix tax" on services, media or software purchased from an overseas online retailer.

He’s now suggesting another way to put the grey ones’s hands in your pockets: a land tax on non-NZers and NZers living overseas. A land tax said to be around ten percent of the land’s value, payable every year. A land tax payable by owners out of their income on the value of their asset. A tax that will undoubtedly require a whole new army of assessors to value these ever-rising assets. A tax imposed on land owners as a xenophobic political sop instead of acknowledging the government policies that have made land in NZ far, far too expensive.

A land tax that would see many folk having to find around $100,000 every year or face the consequences -- to pay for the consequences of the very government policies that made their purchase more expensive!.

The argument for it? There may be “evidence,” says Mr Flip Flop that foreigners are “pushing up” New Zealand house prices.

First thing to say: not one land tax anywhere in the world has stopped house-price inflation or any of the housing bubbles in any foreign jurisdiction anywhere. Not in Britain, not in Ireland, not in Australia, not in Singapore, and certainly not in the US. So there’s that, i.e., no empirical evidence whatsoever.

Second: this is a highly progressive tax, in that the heaviest burden would tend to fall on the wealthiest. Yet progressive taxes are something Key’s Blue Team are supposed to be against. Key’s reason for suggesting it however is simply his same old tactic of requiring his supporters to swallow dead rats to ‘head off’ the Red Team, the tactic meaning the Blue Team instead implements everything the Red Team would do anyway. So much for reasons to support Key’s Blue Team.

Third, this must of necessity be a tax on land both productive and unproductive ( to make too many exclusions simply invites loopholes), so much of the cost will fall on land that is agricultural, or industrial, or  that is maybe being prepared for subdivision or waiting for rezoning or consent so it may be prepared for subdivision. Adding more cost simply adds another cost to the already rocketing costs of producing sellable land.

Fourth, a tax of ten percent on land value is (in round figures) represents esentially a 100 percent tax on rent that land might be earning. or even more in some cases. This would make the real capital value to the owners fall to approximately zero – so this new Key Tax would not just be a discouragement to these owners to own rental land, but a complete and total disincentive.

Fifth, it is argued that the tax would discourage foreign “speculators.” Yet what is a speculator but someone waiting for a profitable opportunity that has not yet arisen. Speculation itself does not raise land prices—speculators simply take advantage of the dislocations in the market that are causing those price rises. It would be better to remove those dislocations – such as the Metropolitan Urban Limit that arbitrarily makes some land inside the Limit worth up to ten times more than the equivalent land just outside—if their were a Government with the courage to do so. But there is not.

Sixth, the reasons for rapidly-rising house prices are hardly a mystery, and hardly the fault of foreigners – and the money they do bring in to pay for their houses and their upkeep is real money that local tradesmen live on and local vendors can and do invest productively.

As we recited here the other day, the reasons for rapicly-rising house-price inflation are easily put. There are three::

• money became too cheap
• planning rules became too numerous, and
• it’s in the interests of the political elite to keep them that way.

Much has been written about the second and third. But just consider how cheap is the first.

The money used to buy houses is mostly borrowed. The way our system of money is organised, it is essentially debt organised into currency. Your Reserve Bank oversees the creation of this new money (new debt) that is being borrowed into existence – currently at the rate of around $3.8 billion of new debt/money every year – that’s a rate of money/detb creation of  between 8-13% per year.

And you’ll never guess where most of that new borrowing/new money goes: more than two-thirds of it ploughed directly into the already over-inflated housing market. Every year.

It’s a bit f’ing weak to blame foreigners for that.

Because to blame them for anything is frankly just a political sop. A bit of xeonophobic misdirection to get a new tax on the books.

But rest assured that like rust, the taxman never sleeps.  Every new tax starts with a single foot slipped quietly in the door like this one would be. First it’s one size ten inside your door, then two, and next thing you have a whole freaking home invasion. If this first step comes off, expect land taxes on everybody within this decade, and a fully-fledged wealth tax on everything soon thereafter.

Which will help no-one at all except the grey ones themselves.

This is precisely the sort of thing those parasites feed off.

Misreading Special Economic Zones [updated]

[UPDATE: SEZ report is launched tonight at the Mac’s Function Centre in Wellington at 5:30pm. Get along.]

I welcome the welcome that Local Government NZ, the councils’ counsellors, have given to the NZ Initiative’s idea of Special Economic Zones.

Local Government New Zealand (LGNZ) welcomes The New Zealand Initiative’s new report, In the Zone: Creating a Toolbox for Regional Prosperity which recommends the use of Special Economic Zones as a way to test new regionally tailored policies and encourage regional economic development. …

Lawrence Yule at LGNZ however seems to be on a very different page about the actual point of the proposal

“This innovative report is about leading a principled discussion with our key partners around more fit-for-purpose funding options.”

Ah, no, Lawrence. It’s not about just another way to put your hand in ratepayers’ and taxpayers’ pockets.  Consider the Initiative’s leading example:

China’s Shenzhen SEZ has proven to be a spectacular success and showcases the possibilities of an SEZ. Shenzhen itself was partially inspired by Hong Kong’s example. Innovations developed in Shenzhen spread outward, benefitting broader regions.

The success of China’s Shenzhen SEZ was not due to “more fit-for-purpose funding options” for council, whatever the hell that might mean. As the report itself makes clear

The zone came about as part of Deng Xiaoping’s wider goal to open China to the rest of world… The zone’s establishment within a traditional, centrally planned economy symbolised Deng’s commitment to liberalisation…

Since, as the report’s authors say, “New Zealand simply suffers from too centralised an approach that inhibits policy flexibility and policy evaluation,” that’s just one simple example of Mr Yule’s myopic misreading of the manuscript. Maybe he should read it more thoroughly before commenting further. As you can here: ‘IN THE ZONE CREATING A TOOLBOX FOR REGIONAL PROSPERITY.’

UPDATE: Report’s lead author Eric Crampton clarifies how the Enterprise Zones encourage council’s to participate:

On SEZs, here's the basic mechanism:
1) Council proposes an SEZ to Central (what regulatory carve-out they want, or what policy change);
2) Central approves, or not;
3) Local government gets a minor kickback from central government for part of the increase in tax revenue sent to the Beehive from their region. They only get it for increased growth, not for baseline. Amounts of money at stake are small from a central government perspective but could be large from local government's perspective, encouraging some changed mindsets about how important it is to consent new businesses, and new houses, quickly and efficiently. 

I’m guessing that bureaucrats like our Lawrence are eyeing up the ‘kickbacks’ that are there as incentives for growth, with no thought to the fine print of how they might achieve that…

More here at the NZ Initiative’s blog:

We suggest using existing district and regional councils to test-bed policy reforms in the places that want to try them out. Instead of changing the overseas investment act for the whole country, and buying a big ideological fight over it, why not loosen the rules for the Greater Wellington area and evaluate what’s happened? RMA reform has proven impossible. But if the West Coast of the South Island wanted to try a different version of the RMA making it easier to consent sustainable mining activities, and if Auckland wanted to try one focused on achieving housing affordability, why not let them try it?
    We couple the policy trial zone suggestion with a tax sharing mechanism so that local councils would have strong incentive to propose the kinds of special economic zones that would do the most good for their regions. Councils presiding over stronger economic growth should receive some of the increased tax revenue that otherwise flows only to the Beehive. We do not flesh it out in great detail, as there are many ways that could work and that would satisfy the principle. But if median regional GDP growth for Auckland has been around 5%, then it could receive a small share of any growth in remitted taxes below 5%, but an increasing share for increases above 5%. And regions that have grown more slowly would face lower benchmarks.
    Two principles:

1. While we give a few suggestions of policy trial zones that we think would be good ideas, the zones should really emerge from what locals see as the central government regulations and policies holding them back.
2. Central government should only authorise a policy reform zone where it would be happy for the policy to be taken up by any other region wanting it. Otherwise, it could turn too easily into dirigiste central-government winner-picking.

The report has received decent initial coverage. Oliver talked about the report on Q&A on Sunday; the video is embedded below. NBR provides an excellent transcript.

The Dom’s Collette Devlin covers the overall idea, and the Wellington application, in two nice pieces.
    Nevil Gibson at NBR also likes the idea; we’d first mooted the idea at NBR a year ago.

RELATED POSTS:

• Are enterprise zones finally “a thing”?
• GUEST POST: Make Christchurch an Enterprise Zone not a Ward of the State
• A conclusive experiment with a crucial lesson for Christchurch
• What would entice them back? 

Capital taxes are double-plus taxes.

“A tax on capital income is equivalent to a tax on current consumption combined with a higher tax on future consumption, and so cannot in any relevant sense be said to tax everything equally.” *

Discuss.

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* Stephen Landsburg, summarising D. McCloskey, in his article ‘McCloskey at Chicago’