What is land for Georgist purposes?

Matthew Prewitt wrote this interesting piece “Reimagining Property: A Philosophical Look at Harberger Taxation.”  As he defines a Harberger tax, you report the value of your property, pay a tax on that amount, but if you under-report the value someone can buy the property from you at that price.  The goal is to encourage turnover of assets, rather than hoarding of assets.  Prewitt writes:

Recall that in a world where the natural and artificial components of capital were magically unmixed, we might impose a Harberger tax near the turnover rate on natural capital, and a Harberger tax near zero on artificial capital. But, recognizing that we do not live in such an ideal world, Posner and Weyl propose to set HT rates at varying percentages of the turnover rate for different assets, depending on those assets’ investment elasticities. That is, assets whose value increases more readily with investment should generally enjoy lower HT relative to their turnover rate, to facilitate investment.

…artificial capital is value that emerges in response to incentives

As time passes, artificial capital starts to resemble natural capital.

Think of a new boat, built yesterday. Now think of the Parthenon. The labor that made the boat can and should be rewarded. It makes sense for the spoils of boat ownership to accrue to its builder. But the labor that made the Parthenon has dissolved into the mists of time. There is no sense rewarding it. We simply find the building in our environment, like an ocean, a mountain, or a nickel deposit. Whoever possess it deserves an incentive for its upkeep, but not a reward for its existence. Any profits from Parthenon ownership ought to be distributed broadly, and not end up in any particular pocket. Thus, unlike the new boat, the Parthenon ought to be treated like natural capital. Yet it is the product of human labor; when erected, it was the very epitome of artificial capital.

Of course there is a decay function in how we treat rights in intellectual property, and this argument suggests there should be a decay function for rights in physical capital as well.  After some point in time, that physical capital becomes Georgist land, and thus subject to the efficiencies of the land tax, not to mention possible Harberger taxation.

Prewitt’s conclusion is:

  • artificial capital should have a Harberger tax rate near zero
  • natural capital should have a Harberger tax near the turnover rate
  • artificial capital becomes more like natural capital as more time passes and/or it changes hands more times

More generally, as I suggested about five years ago, the forthcoming fights will be about the taxation of wealth not income.

I wonder, however, if this one shouldn’t be argued in the opposite direction.  Let’s say excellence is under-rewarded.  If a structure or capital expenditure lasts for a long period of time, maybe that is strongly positive selection and it deserves a subsidy?  For one thing, such structures are likely to be iconic brands of a kind, with strong option value and the costs of irreversibility if we let them perish or fall into disrepair.  The example of the Parthenon is a useful one, because in fact the monument is endangered by air pollution, and arguably it should receive a larger subsidy for protection, whether for intrinsic reasons or for its economic contribution to Greek tourism.

For the pointer I thank David S.


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