Spending federal dollars is not the only way to stimulate the economy, though it may be a relatively speedy one. But I think we ought to be considering other ways, too.
The catchphrase "Think Globally, Act Locally" comes to mind. There are things which states and local areas can do to help unburden the economy. If someone thinks it isn't time yet to take those steps, I'd like to know how they will know when the time has come.
We heard calls recently for the federal government to provide the funding for state sales tax "holidays" -- a week here, a week there -- to remove the weight of sales taxes from the consumer. Well, maybe the states, and the cities and towns which impose sales taxes, ought to consider shifting away from a sales tax. Alabama and Mississippi impose a sales tax even on groceries. Sales taxes in Chicago are 10.25%! No wonder people want a vacation from them. But wouldn't we simply be smarter to shift away from dumb taxes like the sales tax, rather than shifting consumer spending into a shorter window, causing buyers to finance their purchases and pay interest to the credit card companies?
In the same vein, perhaps states and cities which are concerned about the health of their local economy ought to look at each of the things they tax, and decide whether those taxes help or hurt the economy.
You might be thinking that all taxes hurt the economy, some more and perhaps some less. I beg to differ. Not all taxes are created equal. Most of our economics majors heard this, briefly, once, but their coursework never paused to consider the significance of that statement. Fans of Milton Friedman are likely to remember his statement that he thought all taxes were bad, but that there was one he considered the "least bad" tax. (It is a shame he never pursued the significance of his observation. He could have done some major good thereby.)
When we tax something of human production, we get less of it. So we ought not to tax production, or wages, or buildings. That doesn't leave much, you say? Ah, but it leaves a lot! And what it leaves is of vital importance. You might have learned, if your economics training came from people whose background in economics was largely at the hands or feet of neoclassical economics, that there are two factors of production, labor and capital. As my late mother put it, your education was neglected. They could only teach what they were taught, particularly within the confines of a 15-week semester and a 700 page textbook. What they chose to skip, in the interest of time, left you underequipped to think deeply in this -- or any -- economy!
What was omitted was the third vital factor of production: Land. Land! What a quaint agrarian idea, you might respond. Yes ... and if you buy a home in any of the major metro areas, more than half of what you pay is not for the house, particularly if it is older or well located, but for the land. Do you still think land is trivial today? An acre in midtown Manhattan is said to be worth $400 million to $1.2 billion as a teardown. Would you still think land value is trivial today? What would it cost to buy just a piece of land in your neighborhood today? Retail space in Manhattan sold for $3,348 PER SQUARE FOOT OF BUILDING in 2008!! 90% of that is land value, not building value.
Think about what happens if we tax land value. Land has already been created, so its supply is fixed. Not an acre can be hidden, or sent offshore, or not reported, or treated as trivial. When we tax it, its value remains unchanged. But its price goes down! The amount of the annual tax is capitalized into the selling price of the land. It becomes less expensive to buy; it may even become free, if we tax it heavily enough. (That is, a buyer of a property would pay the seller for the building on it, but the land would have no selling price, just the responsibility of paying the user fee on the land to the community.)
Think what that could do for our economy. It would take a class of players out of the loop. They aren't really players ... they don't create anything, but they do collect from those who would create jobs and goods and services a portion of their proceeds... a sort of a toll. Getting them out of the loop, and setting things so that the revenue they're used to collecting would go into our common treasury would allow us to untax wages, untax sales, untax buildings. Think what that would do for our economy.
Is it fair to change the rules? Well, once public opinion that the enslavement of human beings was unjust became commonly accepted in America, we didn't worry too much about the problems ending slavery would create for the slaveholders. We opted for a step toward justice. This situation is very similar.
But what about the trickle down? Landlords may not create many jobs in their role as landlords, but they employ lots of personal staff, not just in their primary homes, but in their 2nd, 3rd and 4th homes, and their high incomes let them purchase all sorts of luxury goods. Won't taking away their income hurt the economy? I don't think so. The losses will be offset by gains in well-being and opportunity for the rest of us, and our posterity.
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