promoting economic prudence

this video is a spontaneous summary of the below commentary:

Taxing of land ownership could encourage stewardship rather than hoarding. Taxing of land ownership (rather than taxing of spending and profit) could have the effect of encouraging private owners of land, especially of unused land, to either use the land productively or to sell it to others who may be willing and able to use it profitably.

Instead of investing in owning as much land as possible (concentrated hoarding), people might favor investing in using land as well as possible. Rather than simply hoarding land and even facing penalties for improving or developing it, land owners could be given an incentive to invest in the use of the land. That incentive corresponds to a reduction in the taxes on productivity, (income taxes) including the economic productivity possible with a certain portion of land.

Recently, revenues from income taxes have been plummeting in many parts of the world. I was one of many forecasters who anticipated the economic shift underway as well as the implications on government revenues worldwide and the likely reactions of governments to the predictable developments, which many governments apparently failed to predict.

Also predictably, taxes on spending (sales taxes) have also been generating decreasing revenues. Rather than penalizing people for productivity or spending, perhaps the decision-makers now have the will to try something rather radical: to tax the hoarding of unused land. Since the amount of land does not fluctuate, tax revenues could be forecast with precision as distinct from when taxing productivity (income) or spending (sales).

By imposing penalties (taxes) on spending and productivity, governments are also favoring the hoarding of unused real estate by those already wealthy. The wealthiest landowners do not need to earn additional income, as they can spend out of hoarded savings. While purchases are penalized by rates such as 5% (sales tax) and productivity is penalized by rates such as 38% (income tax), there is no similar penalty of the hoarding of unused land- just a tiny tax proportionately. There is also no penalty on hoarding wealth, but indeed that is given tax favoritism with income tax deductions for IRAs and 401Ks and so on.

In other words, the US currently has a tax structure that disproportionately favors the hoarding of unused land and savings, while penalizing spending (with sales taxes) and severely penalizing economic productivity (with income taxes). The penalizing of all spending and especially prudence (profitable activity) would predictably produce a severe instability in a nation’s economy.

Penalizing spending reduces spending. Rewarding hoarding encourages hoarding. With current economic conditions, to reward hoarding and penalize spending (especially profitable investment) seems not just negligent but malicious or even suicidal. However, that is the system we are inheriting. That is the system that the baby boomers have supported. It may have been wonderful in many ways. However, it may no longer be viable.

Penalizing prudence and profit reduces socio-economic mobility. Favoring hoarding discourages economic activity in favor of complacence.

Government spending is not economic stimulus. Government spending just means that spending that would have been done privately is being taken from private decision-makers and being implemented by bureaucrats.

For those who favor economic stimulus, private spending must be encouraged. Hoarding must be penalized- or at least not specifically rewarded as with current tax structures. How could the government stimulate economic productivity? First, reduce or eliminate rewards for hoarding of unproductive assets and then remove or reduce penalties for foreign and domestic investment (income taxes). By increasingly taxing the ownership of land, prudent stewardship of the land would be promoted.

Note that many people focus on how various governments spend money. I am not ignoring that subject, but simply focusing for the moment on what stimulates economic activity and what penalizes it. Different governments (local, federal, and so on) can adjust their spending in accord with the values and priorities specific to the various places and circumstances.

As a competent economic forecaster witnessing a variety of inaccurate and even illogical forecasts and promises, I simply note that penalizing economic productivity never stimulates economic productivity. The anti-productivity and pro-hoarding tax system currently popular in much of the industrialized world will either continue to stifle economic productivity or that productivity-penalizing system will be discontinued, slowly or suddenly.

Rather than penalizing spending (and the profits that result from prudent spending), why not reduce or remove the penalties against some or all spending? Why not penalize hoarding or at least remove tax advantages for those who hoard?

To me, this is not a moral issue. This is a very simple practical issue.

Governments and people who are willing to encourage stewardship and prudent investment will predictably attract economic activity away from governments and people who penalize stewardship and prudent investing. In a time when many governments are facing bankruptcy and motivated to do whatever it takes to attract lenders to buy new bonds from them, perhaps investors will direct their financial support to any government that promises secure tax revenues by rewarding prudent investing and responsible stewardship of the land within their jurisdiction.

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2 Responses to “promoting economic prudence”

  1. danijela Says:

    What you said here sounds to me very reasonable.

    • jrfibonacci Says:

      Thank you. I am actually not especially enthusiastic about it as of now, but I recognize that many people who are investing lots of time and focus on “political solutions” might find it interesting and this content can be a bridge to my other content which I consider to be much more practical (valuable).

      In this one, I also value pointing out (however subtly or directly) that current political systems penalize at least certain forms of what might be called “economic prudence” and discourage most kinds of investment and economic activity in favor of hoarding. This piece includes a typical “Republican Party” perspective (or “libertarian”), but is much more practically-focused. I generally favor a drastic reduction in spending by central governments, but, unlike most libertarians or republicans, I do not oppose the possibility that local governments would provide similar services- free “socialist” education or free “socialist” catastrophic medical insurance. I know that there is value in both conformity and diversity (AKA freedom).

      Probably the only thing that would get severely cut in going from a huge monolithic central bureaucracy to local socialism (as distinct from the current trend toward nazional socialism) is military spending. If there were just 50 state militias that went around trying to get taxpayers to support a huge and lengthy occupation of the middle east, I do not think the individual states would respond with a huge outpouring of animosity and violence. However, that does not mean that I favor a total withdrawal either.

      There is a movie called “rethink afghanistan [the US occupation]” that I began watching recently (and have not finished yet) and it identifies some extremely negligent and wasteful expenditures. Basically, the war is presented as a big money-laundering operation to benefit the private contractors like Haliburton. Since I think of all central governments as basically money-laundering operations, that content- of which I have seen many other examples across decades and centuries- does not surprise me in the least. The movie: http://www.hulu.com/watch/152340/rethink-afghanistan

      I think people who are morally outraged at money-laundering may be naive. However, practically speaking, money-laundering is just not a sustainable way to operate. I think the baby boomers have been extremely complacent (and complicit) with the governments they have been supporting. I think their moral outrage may be a projection of their own shame at having created and worshiped the bureaucracies in our midst. I’ve worshiped bureaucracies, too. I’ve been morally outraged. Life goes on.

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