Tax Reform

Fred Foldvary:

Any government service for which the beneficiaries can be identified should be paid for by user fees, such as a fee to get a passport. Many user fees are economically land rent paid to be in some location during some time. The fee to enter a park, for example, pays rent for the use of that area. A parking meter is really a rental paid for that street space. Use user fees whenever possible, at the amount that covers the cost. For example, fees to enter national parks should be increased so that they pay for much-needed maintenance.

The U.S. government deals with pollution mainly with regulations. This is inefficient. The government should make all polluters pay the social cost of the damage they cause. Germany does this with good effect. The federal government should tax pollution that affects a wide area, such as the atmosphere. State and local governments should tax more local pollution, such as from car exhaust. Pollution taxes could raise billions of dollars without harming the economy, because the pollution is harmful, and if polluters are not charged, they get subsidized, making others pay for their social costs.

Most economists agree that a tax on land rent is efficient in not causing any economic damage. But it gets better, because taxing land rent can even improve the economy, promoting infilling in cities and reducing development in the urban fringes. Taxes on land value are also equitable, since much of the value of land comes from government's public works and services, and a tax on the land value repays value received from government.

It is Constitutional for the federal government to levy a direct tax on land value, apportioned by the population of the states. The federal government did this in the late 1700s and early 1800s. The land-value tax can replace federal income taxes.