The Death of the Single-Tax Ideal: Towards a Triple-Tax Model

The single-tax ideal has become obsolete. This does not mean, of course, that Henry George or his idea of a land value tax (LVT) is obsolete. Land value tax is still necessary, but it is no longer sufficient. A just society in the modern world must have a land value tax, but must not have a land value tax as its only tax. I have reached this conclusion largely as a result of discussions I’ve had regarding Andrew Yang’s proposal to fund his universal basic income (UBI) plan via a value-added tax (VAT). The more I think about it and engage in thoughtful conversations on the subject, the more I think that VAT may actually be the best way to fund a UBI.

I believe that Georgist-style LVT is also needed, but I have come to realize that such an LVT would only work for funding UBI in the short-term. Land values are currently driven up by land speculation and rentierism, which is why there is so much potential for LVT to capture much revenue. However, the implementation of LVT would place a check on land speculation and tend to drive down land values over time. The amount of revenue that LVT raises will have a tendency to decrease over time. This is especially the case as the LVT tax rate increases beyond a certain point. Consequently, in the long run, LVT won’t be sufficient to fund a UBI, especially if you plan on raising the level of UBI as automation progresses.

Additionally, machines will become the new land in days to come. It is hard to predict when it will happen, but eventually nanobots will be the primary means of production. Tiny robots that effectively take up no space at all will be used to manufacture everything. When this happens, we will see land lose its place as the primary means of production. Some have suggested a “machine tax,” but this will be very hard to do, since some machines are impossible to track. It becomes especially thorny when you consider that certain machines may be used for the production of consumer goods or just for entertainment. So-and-so owns a laptop and 3D printer that they utilize to make widgets, which they sell in town. I own an identical laptop and an identical 3D printer, but only use them for making things for my own entertainment. Obviously, I ought not to have a machine tax imposed, since I do not produce anything for consumption. But how would you ensure that I don’t just falsely claim to own such machines for personal use while actually selling products manufactured with them? The machine tax will become easier and easier to evade as such machines become cheaper and smaller. If you want something analogous to that machine tax, but which actually works, a VAT may actually be the best option. Thus, VAT starts to look like the most feasible means of doing what LVT was historically intended to do.

Couldn’t we just fund UBI via income taxes? Well, the people at the bottom can’t afford to foot the bill and income tax is a form of taxation that can’t bring sufficient revenue from the people at the top to fund a UBI. The wealthy tend to evade high income tax rates. This does not mean that such taxes are worthless. They do serve a function, but that function is not raising revenue. We used to have really high top marginal income tax rates, from 70% to 90%. The function of high top marginal tax rates was not to raise revenue but rather to raise wages or increase investment. The capitalist can do a few things with the excess money his business makes: (1) he can line his own pockets, (2) he can give his workers a raise, or (3) he can invest that money in something else. When the top marginal tax rates are high, the marginal utility of lining one’s own pockets as a CEO or capitalist decreases in relation to the marginal utility of giving workers a raise. The marginal utility of increasing investment will only outweigh the marginal utility of raising wages if the capitalist can reasonably expect a return on his investment sufficient to outweigh the added tax burden. Thus, the high marginal tax rates tend to encourage corporations to raise wages. At the very top, corporations and individuals like Amazon and Bezos can legally evade income tax by avoiding taxable events. Progressive income tax systems tend to be ineffective at raising revenue but highly effective at raising wages.

LVT and progressive income tax are inefficient as revenue-producing policies, but this does not mean that they are obsolete. The function of such tax policies is to foster a property-owning democracy or republican distributist system by helping to maintain a widespread distribution of wealth. Both LVT and progressive income tax are necessary components of a just society — necessary but not sufficient! The notion of a single-tax is quickly becoming obsolete. Income tax alone cannot fund the programs that we need for the future and neither can land value tax alone. Indeed, both together will be insufficient in the long run. The raising of revenue ought to be done through a progressive value-added tax (VAT). [Note, the Modern Money Theorist would argue that taxation does not raise revenue for spending but rather offsets inflation caused by spending. I am perfectly fine with framing the conversation that way: the offsetting of inflation caused by UBI spending ought to be done via VAT.]

Thus, I arrive at a three-pronged approach to taxation:
(1) Land value tax is for checking excessive speculation,
(2) Progressive income tax is for checking excessive accumulation,
(3) Value-added tax is for generating revenue (or for “offsetting inflation” if you prefer MMT terminology to classical terminology)

What we need is not a single-tax but a triple-tax. We need conventional high rates on top marginal income tax brackets alongside a large land value tax in order to create a widespread distribution of private ownership. A universal basic income, funded by a value-added tax, is needed to ensure that all people have a share of ownership of social wealth. This triple-tax model is the recipe for establishing a true property-owning democracy (or republican distributist system) as a third way that transcends the stale capitalism-socialism dialectic.

Opponents of VAT, and opponents of Yang’s plan to fund UBI with a VAT, generally argue that VAT is a regressive tax. However, this objection is mostly nonsense. Income tax is a regressive tax, unless you make it a progressive income tax. A flat income tax rate applied equally to all incomes is regressive, whereas a differential tax rate that is higher on top incomes is progressive. Just as not all income tax schemes are the same, so not all VAT proposals are the same. You can have a progressive VAT, which is precisely what Andrew Yang is proposing. Yang has said that his plan would have necessities like food be VAT-exempt. Under Yang’s plan, those goods on which poor people spend most of their income would not be VATable. Hence, he refers to his policy proposal as a “luxury VAT,” as the tax would apply to luxury items and not to main staples. Under such a progressive VAT, the bulk of the tax burden would fall on the wealthy. The VAT could even be rendered more progressive by charging a higher rate on certain items (e.g. yachts and private jets) than on ordinary luxury items (e.g. microwave ovens).