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FairTax as the fairest tax
The concept of a market as a business fascinates me. It's a business that's a container for other businesses.
The ur-example is a hair salon in a strip mall (business apartment). The manager of this strip mall business (who may or may not be the proprietor/owner of the business) rents one of the suites to the proprietor of this salon. The salon in turn furnishes each of the salon booths and rents them to the individual hairdressers, each one an independent contractor. This salon has a single payment system where the money is divided between this hairdresser and the salon, but any tips you give the hairdresser are theirs to keep. (This example is not how all salons operate.)
In this example, is the hairdresser paying the salon a booth rental out of the total cost of the haircut, or is the customer paying the salon a fee for getting a haircut there instead of having the hairdresser come to her home and cut her hair in the bathroom?
I've decided it makes the most sense to call the salon's cut a "market fee", a part of the price which the customer pays but the hosted business doesn't get to keep. It's a true three-way transaction, not a pair of two-way transactions.
So how does this become a conversation about taxes?
Three simple models of taxation
Philosopher Robert Nozick famously came up with a way to philosophically justify private property in a society, but failed to find a way to justify taxes, which derive from private property, other than the sheer necessity. (His Anarchy, State, and Utopia is a magnificent book.)
(Please note, whichever model of taxation you prefer or use internally, modern-day taxes can be seen as any or all of these. This is a simplistic philosophical model.)
In cases 1 and 2, the obligation of the nation's people to pay taxes is based on what other people want (1) or need (2), and only respects personal property if there are safeguards in place, and only while the king or the people respect those safeguards.
The FairTax is a Market Fee form of taxation which automatically respects private property by only taxing business transactions, and by allowing anyone to resell property that has already been FairTaxed once without ever paying tax on it again. It even builds in a dividend for the people, the owners of the national market, equal to the taxation they'd pay at the poverty level, making the government free on the net calculation for the poor.
Seems to me like a hack step gesturing towards Georgism without getting all the way there and losing out on some of its better features. Primarily the economic efficiency, but through it also some of the justification. The country is a meta-market, paying an army to create a safe environment (land) where businesses and marketplaces can exist safely, without fear of disruption by foreign armies. This creates a finite amount of safe land to use. People should pay in proportion to the amount (and desirability) of the land that they use. If someone makes a business that is twice as efficient and earns twice as much money on the same plot of land, then they shouldn't owe twice as much tax. The army doesn't cost twice as much in response to their efficiency, the other people around them aren't being burdened twice as much by their efficiency. They earned extra money by their own cleverness and good business sense, they owe tax only in proportion to what they used from the commons (land, and similar limited resources that are economically defined as "land"). Contrarily, if someone snatches up huge swathes of land and then squats on them, generating basically value but still requiring the same amount of military defense and taking up space that someone else could have used, this "fair tax" wouldn't have them pay any more than a homeless man, while a land value tax would.
How does Georgism avoid the nightmare scenario of giving no rest and pushing everyone to a higher and higher level of efficiency which results in a Malthusian state for all who cannot keep up?
By redistributing the proceeds/profits as a "citizens dividend" which is just UBI except the value is determined based on LVT revenue rather than cost of living. Although not the most economically efficient, the most philosophically/morally sound version of it is that you tax land based on its market rent value as measured via supply and demand, divide it equally into N pieces where N is the number of eligible recipients (which might be all citizens above 18, or all citizens including children, or all permanent residents, the specifics don't matter a ton here) then give each person that money.
It is their birthright as human beings and as citizens of the nation to an equal share of the land. Anyone who owns an average amount of land (not merely surface area, but weighted based on desirability) is net zero. Their LVT and their citizens dividend perfectly cancel out. They are morally entitled to live on or otherwise use a fair and equal portion of the land, same as everyone else. Anyone who owns an above average amount of land (or corporations which by themselves don't receive LVT) has a higher LVT burden to pay for the privilege of hogging up more space than their birthright. Anyone who owns a below average amount of land profits from getting more dividend than their tax burden. Essentially, everyone "owns" an equal share of the land, but some of them are leasing their land to others (or corporations) for money.
Even if efficiency gets really high, and therefore land values, and therefore tax burdens rise, anyone who doesn't want to participate in a Malthusian race for endless efficiency can simply satisfy themselves with an average sized home in an average valued location and pay net zero. This does provide economic pressure to reduce to below average, but the compensation rises accordingly. This is good. This means people can voluntarily downsize and live in a below average area (or out in a rural area that is in low demand) in order to free up valuable land for the high efficiency people and corporations to use, and those people and corporations then compensate the downsizers for the privilege of using their land. This is both just and economically efficient. The people who give up their land are the ones who choose to based on the economic incentive.
There is a potential downside where someone who has lived in the same home for decades might get kicked out if the value of the land around them rises faster than their own income. This is a serious issue, and most Georgists seem kind of cavalier about it. But there are potential solutions such adjusting tax rates slowly in response to rapidly changing prices, essentially grandfathering people in.
It gets slightly more complicated if you're replacing existing taxes with LVT and so not all of it can be redistributed via a dividend. But if you fix the amount of government spending, then in the limit as efficiency and thus LVT increases the excess can still be redistributed via a dividend and simplify to the above dynamics on the margin.
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Justifying taxes is easy. Starting from the perspective that we're all naked apes with no particular duties to each other (and even ourselves) it serves our goals to organize ourselves such that we can work together for common benefits. It also serves our goals to interact in other apes in both cooperative and coercive ways to ensure our well-being is enhanced. From there, we can yadda yadda yadda the obvious utility of state-based organizations where we provide each other with complex systems of behavioral incentives to ensure good outcomes for all, and set upper and lower thresholds for how coercive we allow ourselves to be based on purely practical judgements. There's no fundamental difference between taxes and theft, but that's okay because theft is only consequentially bad.
Or alternatively we can look at religion for guidance. Hey, what does the pope think about taxes?
There's no fundamental difference between taxes and theft, unless it’s designed from the ground up not to be theft. And that’s what the FairTax proposal would do: remove the famous libertarian / anarchist-capitalist moral complaint against taxes. Don’t want to pay taxes? Don’t be a business owner in the great market of America.
Even the so-called "fairtax" is still using the implicit threat of violence to coerce people into giving up money (i.e., the abstract potential for goods and services).
Just bite the philosophical bullet and concede that the only reason any act of collective coercion can ever be "just" is because justice itself is only another act of collective coercion.
If I go into Walmart and text someone to come buy something from me there, Walmart is within its rights to have me ejected, and my customer. Why? Because it's their space. Similarly, if I arrange with a barber to meet her at the local Supercuts where he isn't one of their barbers, they'd tell both of us to leave, and if we didn't, call the police. This is a "threat of violence" which is fully justified by the property rights of the business. I assume you consider these "the collective coercion of justice" too, along with the very idea of property rights?
Yes.
It's only their space because we, as a society, have agreed that it is useful to enforce a concept of exclusionary control over particular patches of land that can be delegated to other people. Now I'm not saying we shouldn't do that. I think private property, and justice, and taxes are useful concepts to have. But they're only instrumentally good. There's nothing intrinsically wrong about limiting the extent to which we enforce private property rights.
How does this extend to non-humans? Primates show evidence of possession-based behaviour, as do young infants and of course many species will defend their land, den or recent kills.
It seems far more likely that our instincts about property came first, and our legal philosophy about it came later.
EDIT: this was a reply to your last message only, the thread above is kind of confusing.
I don't understand this question. I think nonhumans also have no natural rights? My whole point is that possession-based behavior is not intrinsically good even if it's often a utilitarian good at the individual (or genetic, or societal) level.
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The innate possession instinct only applies to chattels, not land. (And only questionably applies to more chattels than you can carry). Given how much of libertarian dispute resolution comes down to "the landowner decides what to allow on his land", you need to justify property in land to get a workable libertarianism. This is the hard part of libertarian ethics - particularly if (like most libertarians) you are dependent on the goodwill of people who benefit from the existing pattern of land ownership. Our moral instincts about land ownership come from our views on the proper relationship between warrior elites (the original landowners) and peasants.
Locke/Nozick come up with a theory which makes sense, but if taken seriously requires the Norman robbers and their successors in title to give back the stolen land of England, and the parts of the United States where the Indians practiced a minimal level of land stewardship to be returned to the original owners.
If you want to justify your land title based on the lapse of time since the last time the land was stolen, then you have the problem that the State's rights to sovereignty over the land are just as ancient.
Ayn Rand dodges the issue by accepting that moral rights in land stem from the sovereign granting the original land title.
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This confused me, because feudal monarchy worked on pretty much opposite principle. It was a duty of the wealthy nobles to raise and fund their armies when needed. This was something the king required them to do, not inhibited from.
Thanks for the good catch. I was thinking more of tribal kings ruling city-states in the Bronze Age, or their sword & sorcery fantasy equivalents. How it worked historically after Rome pretty much had to be different from my thumbnail sketches.
The parts about armies were merely add-on justifications for the most recognizable and widely agreed-upon expense toward which taxes go.
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Yeah, that's explicitly post-feudal Tudor/Bourbon-style absolutism.
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If it were that, then presumably you could pay a different salon to get a cut from that same hairdresser there.
Yes, assuming neither salon has an exclusivity clause in their contract.
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It's a cute philosophical argument. But doesn't it, in practice, come down to the same thing? One person's spending is another person's income. Let's say Alices makes a sale to Bob, for $10. Two ways of taxing it. An income tax, which taxes Alice 10%, so she pays $1 to the government. Or a sales tax, which taxes Bob, so he pays $1 to the government, and he has to go sell something to someone else to earn money. Most likely in the first case, Alice would just raise prices by 10% to cover the difference, so it really ends up the same.
It does end up approx. the same monetarily, which is why the FairTax people call it “revenue neutral,” but Alice’s product’s final price includes the sum of all the income taxes of all the producers who made it a product Alice could sell to Bob.
Bob’s paying the income tax of the materials manufacturing laborers for the time-slices during its manufacturing in addition to paying for their work-product. He pays for the income taxes of all the delivery workers moving materials around countries and continents until it gets to Alice’s store. And he’s paying for a tiny chunk of Alice’s income tax.
The huge savings of the FairTax come in enforcement reduction and compliance reduction. Right now, Alice has to spend some time doing her business and personal income taxes, Bob has personal income tax, so does Caleb the miner, Dan the driver, Edward the shelf-stocker, and so on. And if any one of them gets it wrong by fraud or mistake, they get a penalty up to jail time.
Instead of the IRS paying agents to hunt down three hundred million potential tax criminals, the FairTax would lay off the IRS as its backlog gets cleared, sunset the income tax amendment, and introduce a revenue service which would only investigate the tens of millions of businesses. Nobody who isn’t an independent service provider or retail manager would ever have to worry about the tax man again, and the FairTax would be automatically calculated at point of sale (the cash register), listed on the receipt, and sent to Washington DC each day or week.
The FairTax is actually set lower than the current revenue collection by the IRS, but the automation and reduced enforcement will result in the same net revenue for the federal government despite lower taxes.
Since it directly taxes the economic trade of value for value, instead of income or wealth which are both proxies for economic activity, the wealthy have no legal way to save a chunk of their profits before the government takes their cut.
It would even decouple revenue from labor, which will become a bigger and bigger problem as more of the income-taxed economy becomes automated.
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There are other businesses that operate on this model.
One that comes to mind for no particular reason is 'dancers' that need a stage and audience will rent stage time in a 'venue' collect gratuities from the audience and individual audience members during 'private dances'. They may also receive a commission on the sale of some of the venus refreshment options.
Yes, good points.
Defining differentiating lines between independent contractor, commissioned producer, employee, slave, etc., is vitally important to labor relations. Often it comes down to pay structure. Are they only paid room and board (food) in exchange for labor? Slave. Are they paid a sum, part up front and part upon completion, for an artwork? Commissioned producer. Are they paid wages with 1.5x for working more than 40 hours in a week? Employee.
In a perfectly free market, or in a criminal "black market", power dynamics are more likely than negotiations between peers. The meta-market of government can, by dint of owning the market (both jurisdiction and coin), restrict the types of allowable employment, business categories, products, services, etc. This is similar to how a salon can choose to restrict its hairdresser contracts to those with certain qualifications and manners, require they follow a dress code, and kick out unruly trespassers who aren't planning on being customers.
Interestingly, the "insurance" rackets of mobs are criminal meta-markets: they keep away the rabble and the other gangs' toughs for a cut of the profits, occasional access to the shop's environs for criminal dealings, favors unspecified, etc. (As a minarchist, I prefer a republic that prevents criminal meta-markets, of course.)
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Could you say more about what the FairTax actually is? I'm at best dimly aware of it. Something like "a flat sales tax on all goods, with no other taxes (income, property)"?
That's the gist. There's a whole website about it..
The tax is high, and there are prebates for the poor.
It appeals to me for many reasons, including that it incentivizes the creation of durable goods and consumer thrift.
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In these sort of platform marketplace systems like scamazon, ebay, and salons, the legal opinion of the platform is clear.
You have a transaction with the seller, and the platform is simply providing payment processing and other services. If you have a dispute the platform is not a party to the dispute, though they may step in and send the money back. The seller pays a separate fee to the platform for the services.
It gets fuzzier for things like uber and grubhub, because of the highly dubious connection between what you pay and what the sellers get though.
Did you know that modern supermarkets often have the company delivery workers stock and face their product? The wide world of markets is so much larger and fuzzier than simple selling platforms.
I had many of these philosophical realizations when I saw how a flea market operates. There's an entry fee for the customers, and a booth rental fee for the vendor. At the Expo New Mexico (nee NM State Fairgrounds) flea market for example, there's a flat $25/day fee for the vendors. This, and the membership fee at Costco, helped me realize a market can charge both the customers and the vendors, getting some revenue from either the expectation of economic activity or the consummation of same.
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