Why Not Tax Monopoly Rents?

Some interesting material coming out of Prosper Australia is a Melbourne-based organization and its partners, Earthsharing Australia and the Land Values Research Group.  A new report entitled “Total Resource Rents:  Harnessing the Power of Monopoly” (pdf file) finds that nearly one-quarter of Australia’s GDP comes from unearned income, not the 2% that neoclassical economists claim. 

This means that ten times greater revenue could be raised through taxing unearned income from monopolies than previously thought.  It also means that nearly half of Australia’s government revenues could be raised through channeling revenues from the real estate boom to more productive purposes.  In the process, income, company and sales taxes – along with 122 other current taxes – could be eliminated.

Report author Karl Fitzgerald, “the Renegade Economist,” describes the implications of the findings of the report:

“Unearned incomes equate to 23.6% of GDP and could be taxed without pushing up pricing structures. Most economists dismiss economic rents at just 2% of GDP. This report finds the free lunch driving the wealth gap is ten times greater than mainstream economists acknowledge. 

“Prices could fall by some 20% by reducing the number of taxes from 126 to 24” stated Fitzgerald. “The compliance and deadweight losses are a huge cost that fall disproportionately on small business.”  This reform offers a more efficient and equitable economic system, valuing productive over speculative activities.

Australia taxes productive work while averting its eyes from the incredible windfall gains handed to those who own monopoly rights. Victorian abalone licenses were sold outright for just $6 in the late 1960′s. Each license can now be leased out yearly for a reported $100,000. This unearned income can be taxed without affecting productive outcomes.

The largest component of monopoly rents is land. Land rents rose by some $154 billion, amounting to 14.2% of GDP in 2011-12. If desired, the inevitable property bubble could be channelled into funding over half of all Australian government revenue. Less debt and more flexibility are worthy objectives for government and citizens alike.

The Federal government is enticing state governments to sell off public assets with a share of company tax. The majority of recent Public Private Partnerships have been unabashed economic failures, delivering few if any profits. ‘Value capture’ is a more effective model for financing infrastructure. Land values rise in areas where the public finances a new train station. By capturing one third of this uplift, all the infrastructure needed could be financed.”

Here’s a brief overview of the different types of monopoly rents that could be taxed, along with calculations of the amount of revenues that could be raised.  The categories include land, oil and gas, water rights, airports, forests, satellite orbit rights, patents, among many other sources of unearned income. 

While we’re on the subject of Earthsharing, here are two amusing video mashups by Jacob Shwartz-Lucas that appeared on the Earthsharing website (via YouTube).  The mashups use popular movies to explain the many enclosures of nature going on today, especially land.

The first video, about 8 minutes long, depicts fictional absurdities such as a business that owns the air and an investor that owns the sun.  It and then moves into realities that are equally absurd, such as an entrepreneur that has sold million of deeds to plots of land on the Moon, and the land grab that has already transferred an African land mass the size of Great Britain to non-African investors and speculators. 

The second video, about 13 minutes long, has a similar smorgasbord of themes:  how Denmark used true-cost economics to dramatically reduce its energy consumption while still growing its economy and cutting carbon emissions; film clips from (improbably) Gone With the Wind and a Woody Allen movie, discussing the value of land; and a funny riff by comedian George Carlin proposing that we reclaim golf courses “used by white, well-to-do businessmen to make business deals to carve up this country,” and turn them over to the homeless. 

There is also a good discussion about Henry George’s brilliant, under-used idea of land value taxation as a fairer way to raise revenue for public purposes while improving cities and reducing sprawl.  For more, check out the Henry George Foundation website