2. Other Tax and Fiscal Policy
Governments that let capital and people move freely find it hard to tax mobile income at high rates, so they give up on high rates altogether. This section argues that the constraint binds only on the wrong base. Economic rent, income above what keeps an asset or a firm in use, can be taxed heavily without driving anything away if the tax reaches it where it cannot leave: at origin where the rent is tied to the place, and at destination where it follows the customer. The section’s paper, Rent Tax, combines a land value tax above a household allowance with a tax at 50 percent on large firms’ profit above a normal return, two destination layers that follow the customer, and a cap that stops any firm paying more than half the rent it earns from local customers. Its revenue estimates, built from sourced inputs, are 1.0–2.7 percent of GDP from land and 2.3–6.3 percent from the corporate layers. A second paper, Let Land Pay for the City, applies the land tax to fast-growing cities in developing countries: a recurrent land value tax plus capture of the uplift that infrastructure creates can fund much of their transit and services, and because the tax rewards compact building it is also a green tax. The book Plucked! gives the longer argument for UK tax and benefits.
Section overview (pdf) → · Series slides (pdf) →
2.1 Taxing Rent, Not Effort
A Simple Design for Land and Corporate Taxation Consistent with Free Movement of Capital and People
Free movement of capital and people has pushed governments to give up on high taxes on mobile income. This brief argues that they can still tax rent, the income above what is needed to keep an asset or a firm in use, provided they reach it where it cannot leave. It proposes a land value tax above a household allowance and a corporate package that presumes large firms earn rent: a high rate on profit above a normal return, destination-based layers that follow the customer, and a cap. An asset-light foreign platform’s tax rises from 1 to 50 percent of its local rent; firms that invest and employ locally pay nothing on their normal return.
Policy brief → · Working paper → · Slides (pdf) → · Policy brief (pdf) → · Working paper (pdf) →
2.2 Let Land Pay for the City
Property Taxes, Public Land and Land Value Capture to Fund Green Urban Infrastructure in Developing Countries
Cities in Africa and Asia will add about 2.5 billion people by 2050, and most of the roads, transit, water and drainage they will need is not yet built. Building it can raise the value of urban land by more than it costs, yet developing countries collect recurrent property taxes worth only a few tenths of a percent of GDP, against about 1 percent in advanced economies. This paper argues that land should pay for the city. A recurrent tax on land value, together with capture of the one-off rise in land value that new infrastructure creates, can fund a large share of urban infrastructure. Hong Kong and Singapore show the model at scale: public ownership of land and rail-plus-property development let mass transit pay much of its own way. A property tax that falls mainly on land is also a green tax. It rewards compact building, penalizes idle land on the urban fringe and makes transit viable, and the compact, walkable city it supports brings large health gains from fewer road deaths, cleaner air and more physical activity. The paper sets out how a poor city can adapt the model, the planning it needs, and a best-practice outline for a property tax and land value capture code.
Plucked!
Book · A Guide to a Fair, Simple, Efficient and Politically Feasible Tax and Benefits System · with Gordon Styles, 2020
A case for reforming UK taxes and benefits, from the principles of a good tax system to welfare and work, inequality, corporations, land and property, money and debt, and the environment, ending with a set of proposals.