Tax Regimes that Don’t Invite Corruption
H. William Batt, Ph.D., Board of Directors
Robert Schalkenbach Foundation, New York
International Union for Land Value Taxation, London
International Journal of Transdisciplinary Research
Note: The New York metro area considered is four boroughs of New York City–the Bronx, Brooklyn, Manhattan, and Queens–and ten counties in northern and central New Jersey. Staten Island, the fifth New York City borough, is excluded because transaction data are unavailable.
The cost of compliance, evasion, and corruption in the collection of taxes is estimated at about 15 percent of GDP in the United States, and is far higher in most nations. This does not include the excess burden and time spent in the administrative process for both payment and collection. Much of the waste is due to poor design, which a better understanding of economics and tax theory could go far to remedy.
A solution lies in the taxation of what classical economists called land rent, ground rent, Ricardian rent, and resource rent. Not only would taxing rents reduce and even eliminate much of the corruption associated with tax administration, it would also better conform to all the textbook principles of sound tax theory. Contrary to common belief, it is the perfect revenue system. Moreover, careful analysis shows that the economic rent as a proportion of GDP is sufficient to finance all government services, easily enough to supplant taxes on labor and capital goods that are far less efficient and rest on weak moral ground. Rent is the yield value above any price necessary to bring a resource into economic play. Its value is created not by individual market players but rather by society cooperatively. All natural resources yield rent to the extent that they are part of the market. Land sites, air, water, the spectrum, time slots, and a host of other elements not created by human hands or minds all yield rent.
An ideal tax is neutral and efficient with respect to markets and progressive in so far as those who have fewer resources will pay less. It is also easily administered, simple to understand, and provides a stable and reliable revenue stream. It is certain in the face of any attempts at evasion. Lastly it is environmentally helpful because it reduces the throughput consumption of natural resources, and when applied to land value, it acts to reverse the centrifugal forces of sprawl development.
The central point is it is difficult to cheat or evade a tax on land: it cannot be hidden or moved away. It is easily rated and levied. And all parties can be witness to its payment.