21 May 2018

Good Proposal

One of the features land reform historically has been expropriation, and these days, that frequently is made very difficult by modern trade deals, and extra-territorial court decisions, where you see people seizing assets once they are out of countries.
There is another way, rigorously enforced property taxes at a significant , with a reasonable homestead exemption, something on the order of 20 hectares for agricultural use, and 2 hectares for other uses:
………Most of the land, and all the best land, is owned or controlled by absentee natives or by outside organizations—foreign corporations, banks or governments. Local government is corrupt, incompetent, and obligated to outsiders if not actually controlled by them. There’s a two-fold net effect. On the one hand, there’s a continuing drain of working capital and labor to the outside, as rents, interest, profits flow out and young adults emigrate. On the other hand, the extraction process cripples the economy, by cutting off working capital and killing labor incentives. The local government, cannot or will not provide adequate services, due to corruption and lack of tax money. Metaphorically, these colonies are being bled dry.

Suppose a reform government were to come to power in these places and suppose it could stave off foreign threats. How could it stop the bleeding?


The same strategy can work for modern colonies. A reform government can heavily tax the value of real estate, possibly with exemptions for small resident property owners. Better yet, and much easier to implement, tax only the land component of real estate. Such a tax would force absentee owners to send euros or dollars back to the colonies. The government could then begin to provide services and repair infrastructure. But why tax real estate? Why not tax income or imports? Because absentees and foreign based corporations can easily avoid income taxes by funny accounting. Taxes on most imports are regressive and a drain on the economy. The real money is in real estate.

All but the most primitive governments keep some sort of registry of property, crude and out of date in Greece, Haiti, and Puerto Rico. A reform government can easily create new cadastral maps—that’s what George Washington did as he surveyed Native American land. In the age of GPS it’s even easier. The government can then place the existing claims on the map. The recorded “owner” may be a shell corporation based in the Bahamas, but no matter. Just tax it. Where claims overlap, they can be taxed twice—forcing owners to resolve the boundaries. The government can claim any blank spots—forcing hidden informal owners to declare themselves or lose the property.
If you juxtapose this with a stated goal of land reform through eminent domain, where the owners are paid a fair market value for their properties, you can create a simple assessment of the property:
Another strategy for getting initial property values is to ask owners to declare the values themselves, with the government having the right to purchase the properties at the declared value. The government right to purchase, if enforced, takes away owners’ incentive to understate the value.
As an aside here, if you require this declaration for a reduced tax rate, say 20% if the owner does not make a declaration versus 2% if they do, and you require the land to be tied to an actual person for a homestead exemption, which means that obscure ownership arrangements become economically unsustainable.

The downside, of course, is the urge of politicians to cut tax deals with large corporations for the immediate political benefit, even though any sane analysis shows that this ends up costing more than it generates in revenue.  (Amazon's grotesque competition for its second headquarters is simply the most egregious example ……… so far.)


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