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The average citizen in virtually all ideological societies will pay various taxes. These taxes fall into three subcategories:

  1. Tax due when they receive money (tax due on income from labour or selling an asset at a profit)
  2. Tax due when they spend money (sales taxes and duties on goods and services)
  3. Static taxes for owning certain assets (vehicle taxes, property taxes)

The problem with the first two categories is that they can be evaded through black markets, offshoring of transactions, and collusion with tax collection authorities. In most societies, personal income is a very private matter, therefore there is no majority will amongst the citizenry to enforce transparency on how much tax citizens pay on their incomes, which further encourages evasion and corruption.

The proposed solution to these problems is to replace all taxes with a land tax. This would be a monthly charge due from each landowner. There would be different rates charged for different land usages (e.g. farmland would have a very low rate, while land with residential or commercial buildings would attract a more substantial charge). The charge would be a certain amount per unit area owned (e.g. £10 per month per square metre of land owned with residential buildings upon it). The rates could also vary by region, in order to match the spending requirements of the local government. To enforce transparency, an online public database with maps would show how land is categorised, who owns it, and how much revenue is being generating.

The anticipated advantages would be:

  1. A land tax cannot be evaded or offshored. Land ownership is fully transparent
  2. The poorest in society, who own no land, pay no tax, while the wealthier, who generally own amounts of land proportionate to their wealth, will pay more tax
  3. The elimination of income taxes allows all citizens keep 100% of their earnings, giving them more money to spend in the economy
  4. Elimination of sales taxes would reduce the price of goods and services, encouraging consumption
  5. Highly skilled people working in the 'industry' of accountancy could move into more productive industries

Would this deliver a fairer society and improve the economy?

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  • $\begingroup$ To whomever voted to close as off-topic, would you please explain your vote? I fail to see how this is off-topic. $\endgroup$ – Frostfyre Oct 15 '16 at 3:31
  • $\begingroup$ Also, welcome to the site, Caustix. $\endgroup$ – Frostfyre Oct 15 '16 at 3:31
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    $\begingroup$ I was not the one who voted to close, but this question certainly has the smell of "I want to know about this thing in the real-world" instead of "I'm worldbuilding and want to know how this thing affects my world." $\endgroup$ – Azuaron Oct 15 '16 at 10:56
  • $\begingroup$ "Fair" is in the eye of the beholder. If the wealthiest man in a city never uses a public street, is it fair to tax him for the roads? The reality is a city needs X amount of money to operate and how they get it eventually hurts the middle class most of all (regardless how the tax manifests). Besides, the poor use police, fire, hospital, etc. just like everyone else. "Fair" is that they pay their share for common services regardless how much money they make. This, among many other things, is why taxes take many forms. "Fair" is in the eye of the beholder. $\endgroup$ – JBH Sep 9 '17 at 23:53
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There are some specific problems with your anticipated advantages that mitigate any gains you might get.

  1. A land tax cannot be evaded or offshored. Land ownership is fully transparent
  • Not completely true, as pointed out in other answers.
  1. The poorest in society, who own no land, pay no tax, while the wealthier, who generally own amounts of land proportionate to their wealth, will pay more tax
  • Land tax on rented property will be paid by the renters whether they own it or not. Land tax on stores will be paid by consumers. Land tax on entertainment will be paid by those being entertained. Land tax on utility companies will be paid by consumers. Etc.
  1. The elimination of income taxes allows all citizens keep 100% of their earnings, giving them more money to spend in the economy
  • Instead of directly paying taxes, they'll be spending more on services and goods to indirectly pay the businesses' taxes. Overall, nothing changes.
  1. Elimination of sales taxes would reduce the price of goods and services, encouraging consumption
  • Again, you're just converting from direct sales tax to indirect land tax. Prices don't change.
  1. Highly skilled people working in the 'industry' of accountancy could move into more productive industries
  • Accounting consists of much more than just finding tax loopholes. Simplified taxes would certainly be nice, but you're talking about a fraction of a percent more "productive" use of these extra people. Society as a whole isn't going to notice.
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    $\begingroup$ +1 for essentially saying that all taxes will eventually be passed on to someone who can't pass them on. This is so frequently forgotten. $\endgroup$ – EvilSnack Oct 16 '16 at 20:18
  • $\begingroup$ Why wouldn't prices change to account for the amount of land involved in the good's production? So a farmer needs to charge significantly more for his grain to cover the large amount of land he owns, while a fisherman can lower his prices. $\endgroup$ – Kys Oct 17 '16 at 19:08
  • $\begingroup$ @Kys: Yes, specific prices of specific goods will change based on specific taxes. Maybe farm-grown food costs a little more, so people will be slightly more likely to buy fish or whatever. But the end result will be about the same. $\endgroup$ – MichaelS Oct 18 '16 at 1:12
  • $\begingroup$ My point was that tax evasion amongst the elites is rife, therefore the little man currently pays too much tax, while the elites don't, and waste the nation's wealth on things like luxury yachts, which don't really help the little man. By ensuring the elites pay more tax, the little man pays less. $\endgroup$ – Caustix Oct 18 '16 at 11:52
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You are describing a very old system of governance known as Timocracy, where political power is vested in the landowning class.

In ancient times, and even into the early modern period, this was not only a very good indicator of actual wealth, but also ensured that landowners were full and wiling participants in governance, since they were the most affected by it and had "skin in the game", so to speak.

Even the intent of the founders of the American Republic was to create a Timocracy of landowners, who were dedicated to the preservation of the Republic and its prosperity.

Today, however, Timocracy based on land ownership would not work very well. The industrial revolution and subsequent changes to the economy have severed the close link between land ownership and wealth creation. A land tax would have very little effect on companies like Apple or Google, and many of the Silicon Valley startups (or most new business, for that matter) do not own the property where the work takes place, but rather lease it from a property management company. Landowners would be up in arms, since they would be carrying the burden of government, yet have far fewer financial resources or even people to attempt to influence the political system, compared to the poor (who outnumber them- preventing the poor from overwhelming the landowning class was one of the basic reasons for establishing a Timocracy in the first place), and of course watching millionaire and multi billion dollar foundations like the Tides Foundation, Soros "Open Society Foundations" or Moveon.org influencing elections should tell you that landowners would become increasingly bitter and resentful that they are being outvoted and their wealth is being taken from them; hardly an ideal situation for the long term health of a society.

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  • $\begingroup$ At the other end of the scale, I once worked for a Silicon Valley firm (well, a multinational with labs there) which owned a couple of thousand acres of land, but chose to keep almost all of it as an open space preserve. $\endgroup$ – jamesqf Oct 16 '16 at 4:34
  • $\begingroup$ There must be some linkage between taxation and representation or else...well you know what happens then. $\endgroup$ – kingledion Oct 17 '16 at 1:08
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This idea is circulating from quite a while: https://en.wikipedia.org/wiki/Georgism

There are clear advantages, like practically no economic distortion, evasion or forcing land to be put in to most useful use. Nevertheless I would say not "usage" but "location". (I mean if one want to put a tomato field in city center that's OK, but should not deserve tax break)

Nevertheless:

-there seem to be a serious unpopularity of such tax (except of psychological reasons, there is a point that one could have a house with nice piece of garden and very meager earnings / pension. Economists would say that such garden, even when inherited from beloved family should be sold, but economists tend to be psychopaths ;) )

-certain businesses like finance, legal services or IT tend to generate huge profit but under such system pay almost no tax (such tax was a better idea in the past)

-there are certain things with negative externalities (or clearly harmful) that better be taxed with some sin taxes - tobacco, alcohol, emission of pollution, etc.

-there is a limit of land rents that can be extracted by gov. If your gov needs more (eg. wants to fund some healthcare or retirement system) then may exceed the maximum point and only see how people build high and give wastelands to gov just to avoid this tax.

Conclusion: moving a bit towards such land tax system (and at least reduce social security /income tax) would be reasonable, but there would be serious issues to just replace all taxes in this way.

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This approach would have been highly successful in the 17th, 18th and 19th centuries, but less so today. Back then, if you owned a lot of land you were rich, and if you were rich you owned a lot of land. Today, however, some very wealthy people own practically no land (think Mark Zuckerberg, or Bill Gates, or Warren Buffet), while some people who are middle-class (or only slightly rich) own very large amounts of land (think farmers or ranchers). A land tax would likely drive up the price of food, and that wouldn't help the poor very much.

There is a similar problem if you only use sales tax. Out of necessity, the poor spend almost 100% of their income. That means that the poorer you are, the more you're hurt by taxation (horrible). It'd be easier for the rich to become ever-richer if sales tax were the only tax: most of the income they earn won't be taxed as long as they don't spend it. Yes, of course the rich will spend portions of it. But it would be very, very easy for a rich person to use their fortune to make more money. A rich person could double, triple, or quadruple their wealth with no taxation.

Based on your post, you want a system of taxation that:

  1. Is difficult to evade
  2. Is fair (low taxes for the poor; high taxes for the rich)
  3. Simplifies accounting
  4. Doesn't hurt the economy

Based on this, I propose:

  1. Taxing Capital Gains (i.e. money made from the stock market and other investment)
  2. Taxing Business Expenditures, with higher rates for larger corporations (basically a progressive sales tax that only applies to companies, and also helps small businesses compete against large corporations).
  3. Tax business profits (at a higher rate than expenditures). In this case, profit = revenue - expenses.
  4. Sales Tax, but only for luxury items.
  5. Income Tax that 1) includes all money a person makes in a year (from stock, from from work, etc), and that 2) only applies for people who make more than a certain amount (i.e. only if their income is 5 times the cost of living in the area of their primary residence).
  6. Fortune tax which takes a small portion of all total assets each year, say 2%. But only for very, very large fortunes (say when a person has a networth greater than 10 million dollars)

Various tweaks or adjustments can also help promote investment in various areas. For example, the government could start a program whereby companies can be licensed as "research institutions" if they spend more than a certain amount of money on research and development, if they publish papers on the research that occurs, and if they agree to allow anyone to use their patents after a set period (say 3 years). A company with a "research institution" licence can deduct their R&D budget from expenditures, and capital gains taxes are lower for those institutions.

These taxes should ensure the following:

  1. The government does have enough money to defend the country,
  2. To provide high-quality education to it's citizens,
  3. To provide necessary medical care to the sick
  4. To maintain infrastructure and sanitation
  5. To fund research as necessary

In addition, a system of licences in return for tax deductions should help encourage good behavior on the part of companies, while also promoting certain kinds of spending (such as R&D). At the same time, it should have a minimal impact on the average consumer. Attaining licences would require more involvement from the government (to make sure a company wasn't trying to cheat), but it wouldn't be more costly or more complex than the current system of a hundred thousand separate deductions.

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There's a phrase I like to use whenever someone throws around the word "fair." I like to point out that fair is an F-word, and 4-letter-word. Both terms for expletives apply to the word "fair."

Accordingly, I can say "your system will be more fair from the perspective you choose to view it from."

It would create some really uneven businesses. Consider businesses which center around the maintenance of very expensive servers in server rooms. The amount of dollars going through each square-foot of that building is enormous. Business would flood into that market unless you taxed at an extraordinary rate. Meanwhile agriculture brings in very few dollars per square foot. Agriculture will die unless it's taxed at a very low rate.

You mention that different classes of land might be taxed at diferent rates, but are you ready for rates that vary by a factor of 10,000 or more? You could easily hit a difference in taxation of a million fold before these sorts of businesses are on reasonably "fair" footing.

So now you have a huge opening for tax evasion. You thought you were taxing land, but you're really taxing land use. With incentives like those described above, there will be a huge market for people trying to create "farms" that technically grow a crop, but they make their money off a server room in the middle of the parcel. Your tax code would be quite complicated.

You'd need to watch out for all sorts of clever things. You always have to when you tax static things (like land) instead of taxing moving things (like transactions). My go-to example is how Mexico handles property taxes. If you drive around there, in many areas you will see buildings with all this ugly rebar reaching up out of the roots. It's because they tax land differently once a house is built on it. The loophole: every such building in Mexico is a "2 story house" on paper, but they "run out of money to finish it" after the first story is complete. Then they never have to pay the higher taxes on the land.

Better to admit that taxes will never be fair... ever. Instead, work towards how to make do with unfair taxes.

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    $\begingroup$ I remember seeing the same tax dodge in Cyprus! Tax evasion is an international sport. $\endgroup$ – Thucydides Oct 15 '16 at 5:13
  • $\begingroup$ Tax evasion is an international sport because taxes are not levied for the benefit of the people who have to pay them. $\endgroup$ – EvilSnack Oct 16 '16 at 20:21
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You might actually get Warren Buffet pissed at the tax code this way

This sounds OK at first, until you realize that it'd impact certain entities highly disproportionately to others, as some entities hold land in highly disproportionate ways. Historically, land grants have been used as a means to encourage certain types of development (homesteading, transportation, universities), and entities involved with those types of operations are going to get hit hard under your scheme.

In particular, in the USA, the major Class I railroads own oodles of land, much of which dates back to the original land grants they were given to spur the development of railroads through yet-undeveloped areas. Under your proposal, they, along with some major agricultural cooperatives and corporations and a few major real estate holding/management firms, would be some of the largest taxpayers in the country, while many other businesses that lease most of their resources would pay minimal or no direct taxes.

The impact would be greatest in transportation -- it'd be a massive subsidy to trucks, aircraft, and ships/barges as most of those companies rely heavily on public infrastructure, while massively penalizing railroads. It'd also discourage upfront private investment in large-scale facilities such as toll roads, bridges, and airports due to tax liability confusion when public and private entities jointly own land.

In short, you'd have to give the railroads an absolutely monster tax break, or completely nationalize the rail network infrastructure (track, right-of-way, and maintenance thereto) in order to give this scheme a snowball's chance in hell. Either that, or your scheme contacts BNSF 793812 while said equipment is moving...

If privately owned transportation infrastructure wasn't a thing, though...

Now, if you're in a place where the railroads are nationalized along with all the other transport infrastructure (i.e. most of Europe), this could work. Major estate holders would basically become tax collection clearinghouses under this scheme, collecting what basically would be a value-added tax on their leases and remitting it to the government.

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This seems fundamentally unfair, at least to my subjective definition of fairness. For instance, a subsistence farmer might own a lot of land*, but make very little income off that land. On the flip side, a billionaire might choose to live in a Manhattan penthouse, sharing the ownership of a small plot of land with perhaps thousands of people in the apartments below.

Another drawback is that much 'unused' land actually provides valuable (in the sense of being important to life, rather than financially) ecosystem maintenance services. There does not seem to be any practical way to monetize these services, so those who own such lands would be paying a heavy tax, while non-owners would be receiving the services gratis.

*We can see this happening in practice in for instance the Appalachians, where poor natives are effectively taxed off their land in order to build mansions for wealthy incomers.

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Where land taxes exist, they are generally set as a fixed percentage of the land's value. There is an official—named the assessor in most of the U.S.—whose job it is to establish these values. In most jurisdictions he simply rubber-stamps the price of the most recent sale, although in many jurisdictions he is allowed to "adjust" this value at specific intervals (usually once per year).

Every year, the owner pays a fixes percentage of the assessed value.

This avoids the problems raised in the other answers (namely, the problem that levying a fixed amount per unit area will make farming uneconomical without raising very much from high-value skyrise apartments).

Most places also have a homestead exemption, which reduces the taxable amount by a fixed value if the property is the primary residence of the owner. This reduces the immoral and unpopular occurrence of widows being turned out of the house she's lived in for 50 years because she is not able to pay the tax bill.

Such a system also gives the government a vested interest in maintaining the overall desirability of living and working in the area; if nobody wants to live there, property taxes dwindle, leaving them with less money.

It also leads to abuses; Google "Kelo decision" if you want a few pagefuls of stuff about this.

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  • $\begingroup$ How does this answer the question? Land tax would have to be a much, much higher % of the land value than it is now, if it would have to replace all other taxes. Your answer does not deal with this in any way. $\endgroup$ – Mołot Oct 16 '16 at 20:55

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