Henry George's Tax Policy Proposal
Maurice Fabrikant
[The following is a partial transcript of a radio
program featuring Maurice Fabrikant, President of Tax Reform
Australia, 20 August 1998. The program was hosted by Terry Laidler, of
Melbourne ABC 774 Radio's "Drive" Program.]
On arrival, Maurice observes that academic, and former editor of
Australian Tax Forum, Rick Krever, is also present in the studio.
Laidler, a bright interviewer, former priest, and now also an academic
himself, may have become a little uncomfortable at the thought of
interviewing a Geoist solo, so it seems Krever has been brought along
to 'ride shotgun', so that Laidler can better present himself as
'impartial'.
Henry George wrote his magnum opus Progress and Poverty
after he had been given the sinecure position, Inspector of Gas
Meters. That does not deter Krever from turning George into an
uneducated gas meter-reader. The interview is a classic! Look for all
the usual diversions [from Laidler], and ad hominems [from
Krever], that Geoists have come to expect in radio interviews.
Remember, these men are not simpletons; they are both academics!
[INTRODUCTIONS]
TERRY LAIDLER (TL): ...but I think what the Henry George League, and
Maurie Fabrikant here representing it, is arguing is that the system
which we know is a good one -- you pay for what you take from the
public domain and appropriate it to yourself -- can be applied across
the board.
RICK KREVER (RK): Yeah, I always point it out, there's certainly a
long held, a lot of support for it over a long period, indeed Henry
George came up with the theory in 1879, so it's more than 100 years
old now, and, well, it was a period when there was a lot of economic
turmoil around the world. Karl Marx was writing "Das Kapital",
the movements towards income tax for the first time in a lot of
developed countries, and faced with a lot of depressions and a lot of
fluctuations in the market, a lot of Utopian economists -- although
Henry George wasn't actually an economist, he was a gas meter reader,
self-taught, who left school before he was 14, left school at 13, got
on sailing ships, went to Canada to, trying to remember back to my
history, but he went to Canada to go to the gold rush, missed the gold
rush, got there too late, went back to California, got a job as a gas
meter reader for the state government and starting reading, literally
started reading economics, and came up with this theory which is
.
TL: Just because it's an old idea doesn't mean that it's a bad idea
RC: No, no, no - but I'm just saying, just to understand, to put it
in context, it was a time when people were looking for,
obvious,
simple solutions
.that is, the world was really complex, so
people look for an answer, there was half a dozen at the time, his has
lasted longer
.
TL: But the simplicity argument with taxation has come back again --
we're been told this version of a consumption tax that we're looking
at in Australia at the moment is a better one because it's simple. I
can think of a whole lot of other consumption tax regimes you could
have but one of the criteria you use to assess it is simplicity, and
that's what's appealing with what Maurie's arguing.
RK: Well, I think everyone agrees you want a simple tax -- complex
taxes cost the community money, they cost taxpayers money, they cost
the government a lot to administer them. The difference between this
proposal and others is it's unique - that is, we get rid of
everything, we have one tax, that solves all the problems, and I guess
one of the reasons it never sort of caught on -- two reasons it never
caught on - One, the world's a little too complex for simple
solutions, so that it can't apply to all sorts of modern commerce and
modern transactions, and it also doesn't work very well as it turns
out, if you have an international economy. That is, you could possibly
do it, indeed Hong Kong sort of did it for a little while, with a lot
of reliance on land taxes in Hong Kong as the main source of revenue,
but in terms of international trade it's hard to do.
TL: It's not just a land tax you're arguing for, is it, as I
understand it, Maurie?
MAURIE FABRIKANT (MF) [at last !]: .. Natural resources, Terry --
whatever is not man-made and to which some exclusive access has been
granted to an individual or to a corporation -- well, that individual
or corporation has to compensate the rest of the community because
TL: So you don't have any problem with a pollution tax? If I'm going
to burn something and emit it into the atmosphere, I'm using up, in a
real sense, the clean air, so you'd have no problem with that sort of
tax?
MF: Except that I believe that it would be very, very difficult to
measure.
TL: A carbon tax -- people are talking about it all around the world
at the moment?
MF: Yeah, well, what are the details, Terry?
TL: Substantially, you pay on the basis of the amount of carbon
dioxide you emit.
MF: How is that measured?
TL: Well, in millimoles -- I don't know.
RK: It happens in a lot of countries, actually. And what they do,
they simply say, "How much petrol produces how much carbon
dioxide, so you tax at the input levy -- you tax natural gas, petrol,
coal and so forth.
MF: Does that mean that I would be taxed more if I performed vigorous
physical exercise because I'm going to exhale more carbon dioxide in a
24 hour period?
TL: Well, I don't know -- I don't think they could do that, could
they?
MF: Well, why would there be an exemption on my exhalations but no
exemption on the use of a motor car?
TL: Because I think, relative to the amount of carbon dioxide a car
puts out, you're pretty -- now you won't like this -- you're pretty
insignificant, Maurie!
[Pay-As-You-Earn distraction on the timing of tax collection]
TL: Do you have a view on this, Maurie, or are you so committed to
the fact that an income tax is wrong that you won't even have a view
on which way you're going to collect it if you have one?
MF: Terry, I believe that it's incontestable that as you increase the
rate of income tax you reduce the rate of employment. Now, if we're
really serious in trying to reduce unemployment, then we must reduce
taxes on labour. Now, I don't see any way over that.
TL: OK, so the way you collect it is incidental, the tax itself is
the problem.
MF: Exactly!
RK: It's interesting, though, if you look at the empirical evidence,
the United States had it's period of highest employment - the top rate
was just over 90% - and that, historically, most countries that rely
more on income tax
. have
. higher rates of employment, so
I don't know if you'd want to start drawing those conclusions.
TL: The empirical evidence is against you, Maurie.
MF: Well, I'm not even sure that's true. It may well be that the
maximum marginal rate is very very high, but the rates for the average
person may be quite low. Until we know what the details are, I don't
think the generalisation Rick made is necessarily accurate.
[equity query]
TL: I think the equity argument, as it applies to taxation, Rick,
typically means a theory which says, "Those who have access to
more wealth contribute more to the common good." That's basically
how the phrase is used in the taxation system, isn't it?
RK: Yeah, "ability to pay" is the catchword.
TL: You say it's wrong, of course, Maurie. You say that the
generation of wealth is something we should encourage -- it's the use
of resources when it's inequitably distributed that's accounted for in
your taxation system.
MF: I'm not sure that I followed all of that, Terry, but I would like
to say that just because somebody earns a large income doesn't
necessarily mean that they have a great ability to pay because they
may have some very, very heavy expenses. Now, regrettably, the
personal income tax system does not allow most people to claim for
highly legitimate expenses, so basically personal income taxes are
based on gross income, which is grossly unfair.
TL: Here's an idea that came in an email the other day from a guy who
-- I can't think of his name -- suggesting that, to the extent that
there was an argument for a consumption tax to combat the Black
Economy, there was a much simpler solution. He was suggesting that
money have a "Use By Date" -- that, in fact, a note was only
current for 5 years, and that, every 5 years, you can see your "Use
By Date" on your money, and every 5 years it had to be traded in
at a bank for another note of an equal value, and that way -- at least
every 5 years -- any money that retained any value would move through
the banking system and so there'd be no Black Market.
RK: There isn't much of a cash economy any more, really. We talk
about this as being the cash economy but people don't use cash, Terry
- I mean, I never use cash
I have little cards that I stick in
machines, and buy everything with cards.
TL: You mightn't, but I think there'd be a few trades in which you
might find there's cash changes hands.
RK: Yeah, sure, sure, you might pay with cash but then it goes into
somebody's bank account.
TL: Right, but it's got to go into their bank account as something,
doesn't it?
RK: No, no - our tax system doesn't look at that at all, in fact the
empirical evidence again - I hate to bring that up - the empirical
evidence is that goods and services tax don't touch the cash economy.
They in fact lead to a huge blowout in the cash economy - that's
what's happened elsewhere.
[query about a bank debits tax]
TL: Is it just too simple? Could you combine the two ideas - the idea
of money with a use-by date and only a banks' transactions tax to make
sure that all value that passed around in the community got taxed?
MF: Terry, I can't quite cope with this use-by date business. OK, if
I've got a coin which is going to be absolutely useless to me
tomorrow, OK I go to a bank and I trade it in on a different coin. How
the hell does that help anybody?
TL: Well, I suppose you'd then have to put in place some taxation
system on bank transactions.
MF: We already have that.
RK: There's a movement in Queensland, a strong one similar to site
value as a single answer - they say the only tax we have is taxing
bank transactions. Unfortunately, it ignores the fact that you'd don't
have to move money through an Australian bank so that we wouldn't
actually be taxing anybody but, yeah, it's another Utopian tax, as
they call them. Come up with the
..
TL: So you're a "Repair Restore & Refine the current system"
man, Rick?
RK: Well, I think that's right. I think that the more tax bases you
have, the less damage there is if you got it wrong.
TL: And, Maurie, you are still absolutely committed to basically some
sort of natural resource rental taxation?
MF: Terry, we can look at every country in the world - most of them
derive most of their income from taxes on labour or taxes on exchange,
and all of these countries are heading downhill.
[Program closes shortly thereafter]
If he was lucky, Maurie may have been
permitted two minutes on the program. The reputed point of the
interview, remember, was to learn about the ideas of Henry George!
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