Letter to the government of BC against the HST

Here appears my letter to the member of the British Columbia legislature who 'represents' me (My home and business are in her riding.) sent with a copy to the BC Minister of Finance. The letter not only opposes BC's much-hated 12% Harmonized Sales Tax but proposes an equitable tax that could stimulate the BC economy, help BC to reduce its provincial debt, and position BC as a progressive place to live and conduct business.

The letter went to MLA Carole James and Minister of Finance Colin Hansen on December 20, 2010. Carole wrote to me 01/05/11 thanking me for the letter and stating that she had passed it on to her party's finance critic. Carole is an opposition MLA. The governing party's finance minister has not yet replied.

In May, 2011, British Columbia's new premier, Christy Clark, upholding her government's defence of the HST after a series of public hearings, suggested that the rate be reduced to 10% if the electorate chooses to keep the HST in an upcoming referendum. Though I consider a reduction to 10% more palatable and less regressive, a reducuton in the tax rate does not address the fundamental problem that the HST taxes the wrong thing: transactions.

Just as the HST persists, regardless of the rate, I persist in asserting that governments ought to swing the axe at all taxes, duties, and tariffs in favour of taxing the 'unimproved' value of land and natural resources. This is the Henry George argument, backed by Milton Friedman, John Dewey, Charles Beard, Douglas MacArthur, Aldous Huxley, Leo Tolstoy, George Bernard Shaw, Joseph Schumpeter, and many others. See the letter here.
_____________________________________________________

Carole James December 20, 2010
MLA for Victoria-Beacon Hill
Victoria, BC
carole.james.mla@leg.bc.ca

cc
Colin Hansen
BC Minister of Finance
Victoria, BC
fin.minister@gov.bc.ca


Dear Carole:

I write to you as a constituent. Like many British Columbians, I dislike the Harmonized Sales Tax, the manner in which the government of BC put it in place, and the manner in which the government has rebuffed criticism about it. It also concerns me that British Columbians have yet to hear anybody in the legislature resolutely propose superior means for the government to raise the revenue necessary to serve the province, particularly once the HST is eliminated. This concern motivates me to write to you with just that: a resolute proposal for a superior tax.

It is my hope that this letter prompt enquiry into what I propose. The next BC government might then adopt it to the benefit of all thereby positioning British Columbia as Canada’s most progressive province as taxation is concerned.

Before I quote the writings of economists of the 18th, 19th, 20th, and 21st centuries in a chorus of support for what I propose, first a simple assertion: Taxation should never be regarded simply as a way to raise provincial revenue. Rather, it should always be remembered that to tax is to take from. Thus, the HST takes from the purchase and sale of goods and services. Likewise, tax deducted from paycheques is always money missed by the person who earns it. There is a better way.

The 18th century economist Adam Smith understood something about taxation that the government of BC ought to know. Smith devoted much of his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), to government revenue and the best methods to collect it.

In his analysis of taxation, Smith applies four criteria for a good tax to conform to (p 350-2):

1. "The subject of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities.
2. The tax each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid ought all to be clear and plain to the contributor and to every other person.
3. Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it.
4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury."

On evaluation, just two objects of taxation get Adam Smith's backing:
• luxury consumables.
• land value.

Taxes on luxuries, including tobacco, Smith finds excellent because no one is obliged to buy luxuries. Also (p 401): "Taxes upon luxuries have no tendency to raise the price of any other commodities.”

Smith has more praise for a tax on land value (p 370): "[Land values] are a species of revenue which the owner, in many cases, enjoys without any care or attention. The annual produce of the land and labour of the society – the real wealth and revenue of the people – might be the same after such a tax as before. Ground rents and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them."

Smith used the term “ground rent” to refer to the economic value of land. Land could be the location of a business, the address of a residence, agricultural soil, or any site put to any other use. Other classical economists define rent in much the same way, though more inclusively.

In The Science of Political Economy (1898) Henry George defines land as everything provided by nature: any location and all natural resources that can be acted upon (p 408-9). In Progress & Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth… the Remedy (1879), George defines rent as the share of wealth that goes to the owners of land in exchange for the land’s contribution to the production of wealth or creation of value (p 165).

Joseph Schumpeter (1883–1950) was an Austrian-American economist and political scientist. He earned great and widespread respect for, among other things, his magnum opus: A History of Economic Analysis. Schumpeter regarded Jacques Turgot (1727-81) as the greatest 18th century economist; not Adam Smith. Referring to land-value taxation, first proposed by Turgot, Smith (Wealth of Nations, p 355) calls it a “very ingenious theory.”

Thus, Turgot is regarded as a more important economic thinker than Smith by the likes of Schumpeter while Smith himself pays high compliment to Turgot’s proposal of taxing land values exclusively. Turgot’s Reflexions sur la Formation et la Distribution des Richesses (1766) predates and is echoed by Smith’s Wealth of Nations.

Mason Gaffney is a scholar of Turgot and of George, specializing in Georgist perspectives on land use, economics, taxation, and public policy. Gaffney is an Economics professor at the University of California, Riverside. He was Director of the BC Institute for Economic Policy Analysis (1973-76), founded by the government of BC when David Barrett was Premier. Robert Williams, BC’s Minister of Environment, was the moving spirit. On November 21, 2010, Gaffney wrote, "The government appointed me a member of a Royal Commission to recommend property tax reforms in BC."

In The Corruption of Economics (1994), Gaffney writes of Jacques Turgot, “an outstanding public servant , economic philosopher, and social reformer in 18th Century France,” as the predecessor to George in advocating the taxation of land values to the exclusion of taxes on the earnings of labour and of capital. (Land, labour, and capital being the three basic factors in the production of wealth.)

A Victoria resident in 1858, Henry George gained international fame for his thoroughly-reasoned proposal to tax land value and discontinue all other taxes. In the 1890s and early 1900s, George gained millions of admirers in many countries. The list now includes Mark Twain, Leo Tolstoy, George Bernard Shaw, Albert Einstein, Helen Keller, Martin Luther King Jr, Ralph Nader, Winston Churchill, and may others.

George’s impeccable logic and stirring oratory also garnered enemies of his work. These included railroad baron Jay Gould, oil magnate John D Rockefeller, and banker JP Morgan.

The Corruption of Economics explains how neoclassical economics was introduced as a paradigm of economic thought intended to deflect George’s reasoning and to frustrate those attempting to implement George’s proposal. Rich men who controlled large amounts of natural resources paid smart men to muddy the waters of economic thinking after George had become famous, so that their privilege and the systems allowing them to profit by it might remain unchallenged.

Milton Friedman (1912-2006) was an Economics professor at the University of Chicago and recipient of the Nobel Prize in Economics. In an interview with The Times Herald of Norristown, PA, December 1, 1978, Friedman says, “There's a sense in which all taxes are antagonistic to free enterprise, and yet we need taxes.” He adds, “So the question is, which are the least bad taxes? In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument.”

Thus, the argument for a single tax on the value of land has the backing of Turgot, Smith, George, Schumpeter, Friedman, and Gaffney – all respected thinkers on matters of economics and public revenue – as well as many others with good reputations concerning economics and justice.

As The Corruption of Economics argues, those who stand to profit hugely by the private control of what nature provides have a significant incentive to obstruct and prevent land value taxation. Yet, only land value taxation stands up to Smith’s and George’s criteria for a good tax, with the endorsement of the likes of Friedman, Schumpeter, Gaffney, and others who study Turgot and George without their thinking biased by the muddy waters of neoclassical economics.

Sales taxes, including HST, enable the government to tax commerce and production instead of land values. Yet, land and natural resources are provided by nature alone; the value of land and natural resources values is created by the community – not by those who may own them. This is why those who own and those who speculatively buy and sell land and natural resources prefer sales taxes, payroll taxes, and such, for they spread around the burden of public finance, albeit less equitably.

In his magnum opus, Progress & Poverty, George cites four canons of taxation (p 408-9):

“The best means of raising public revenues will be one that meets these conditions:
1. It should bear as lightly as possible on production, least impeding the growth of the general fund from which taxes must be paid and the community maintained.
2. It should be easily and cheaply collected, and it should fall as directly as possible on the ultimate payers, taking as little as possible from the people beyond what it yields the government.
3. It should be certain, offering the least opportunity for abuse and corruption, and the least temptation for evasion.
4. It should bear equally, giving no one an advantage, nor putting another at a disadvantage.”

On evaluation, just one object of taxation gets Henry George's backing: land value.

Moreover, wherever it is practised, land value taxation offers these four benefits:
• stimulation of economic activity.
• more efficient use of land and natural resources.
• a virtually inexhaustible source of government revenue.
• more equitable sharing of the burden of government revenue.

As reasoning in favour of land value taxation is concerned, this letter is the tip of the iceberg. It refers to important sources for good economic arguments in favour of land value taxation, though. It is my hope that this letter prompt thorough, unbiased enquiry.

As whole communities and the province as a whole enter the paradigm of taxing the unimproved value of land and natural resources while relieving paycheques and consumer purchases of the burden of taxation, it should come in handy that the BC Assessment Authority has, since its inception, kept in its records assessments of location values irrespective of improvements.

With a global recession still underway including BC, and BC’s economic prospects not their brightest ever, the time is right for the BC government to show the way back to prosperity, with higher wages, lower government debt, and the burden of taxation lifted from labour and capital. This will occur when publicly created value – the value of land and natural resources before improvements – is the sole source of public revenue. This is what I propose to you.

Please look into this now and make it happen for the long-term benefit of all British Columbians.

Sincerely,

Glenn R. Harrington, Victoria