A betterment levy: a cure to current ills

Governments can run surpluses rain, hail or shine, like in Hong Kong and Pittsburgh.

A cure to unemployment

However, a betterment levy helps cure unemployment and poverty as well.

First, setting up a business should be simple and easy. Alas, high taxes and vacant commercial lots, due to exuberant rents are correlated with areas of high unemployment. How can a free market be free when people cannot access it? However, with business and personal taxes reduced or abolished, taxes would no longer eat into the profits of small business. There would be no business taxes and instead a tax on economic “rents” would be paid to the government. The landlord cannot pass over as they already charging the maximum rent the market can bare. Thus, vacant lots will be either utilised by landowners or sold to capitalists who value the site most and thereby employ people. With burdensome and perplexing taxes abolished, this would spawn employment opportunities and entrepreneurship, making it easier for people to set up business, increasing output without punitive taxes and artificially high rents which currently are a structural barrier to meaningful employment.

Consider Pittsburgh, PA. Before they had a betterment levy there were 4,000 vacant lots and unemployment of 9 per cent. After land tax there were only 200 vacant lots and unemployment is 4 per cent, and still dropping despite the world financial crisis. An extra 3,800 active commercial sites did miracles for local demand, firing up new businesses and employing thousands. Yet land prices only went up by 7 per cent in Pittsburgh. It was transformed from a high crime capital to an industrial giant.

Second, a betterment levy, contrary to popular belief, would be a farmer’s best friend. Farmers pay just as much GST as a person in the city while living in a remote location. This is hardly equitable. With GST, income, business taxes on cars and machinery abolished, farmers in a remote location would pay barely anything (particularly on arid, submarginal land). But, where appropriate, government now has an incentive, in co-operation with local government, to build additional infrastructure due to these “windfalls”. Such investment, is also known to increase productivity and accessibility to the market place, which lifts land values once again but at a sustainable level justified by fundamentals.

Third, any monopolies which withhold land from productive use, so as to knock out competitors from the market place, will be introduced to what capitalism is meant to be about - competition. It would simply become unprofitable in the long run to withhold land from productive use. It increases economic welfare as it increases competition.

It will not solve all social problems, but I do believe it can solve most problems.

Misleading counterarguments

Let me briefly dispel six counterarguments against a betterment levy.

1. “The ‘unearned increment’ cannot possibly be distinguished from the value created by the owner.”

Wrong. We do it all the time ourselves. One, we have local rates and state taxes which are executed without much controversy. Second, we use valuators to give us a quote on our house, separating the value from the land. Third, the free market, even when doing housing insurance valuations distinguishes the property value from that of the land (i.e. the ground): the latter can never be taken away by a thief in the middle of the night or by any arsonist. This is not an issue.

2. “This levy will decrease land values and destroy my wealth!”