China shifts taxes to Land

Land rent is the value created from ecological and social endowments, not the personal activities of individuals. Land rent is an amount that should be paid annually for the exclusive right to use a land site location or other natural resource. Land rent varies by location and available amenities. It changes by people's competitive desire to use the same land site. Since land is fixed in supply and cannot be expanded, demand is the sole determinant of land rent. As land demand increases, the rent will increase proportionally. Buildings are not a part of land rent. Land rent is the only source of public revenue that could be taken for public purposes without having any negative effect on the productive potential of the economy. When a community collects land rent for public purposes, both efficiency and equity are realized.

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China has raised revenue from taxes and land use development fees. It has invested in infrastructure, schools, police, fire protection, utilities, and recreation and public services. This investment has increased the rental value of land. China owns its land and each land user should pay land rent to enable China to provide high quality public services to everyone. Land rent exists whether the community collects it or allows people to retain the values that were produced by the community. Collecting land rent will enable China to attain a sustainable and growing revenue base for funding the local and provincial governments. As the demand for land increases the land rent increases.
The burden of paying land rent reduces land speculation, premature land use and the detrimental use of farm land and the rural environment. The requirement to pay land rent fosters the most efficient, highest and best use of land.
The rental value of land should be sufficient to finance all public services and to obviate the need for raising revenue from taxes. Public revenue should not be supplied by taxes on people and enterprise unless all of the available revenue has first been collected from the natural resources and the community- generated land rent. Only if land rent were insufficient would it be necessary to collect any taxes.

The fact that this pilot tax is being rolled out in the most seriously land-inflated areas like Shanghai and Chongqing means they are finally serious about curbing unproductive and socially destructive land speculation. Not only will this raise needed revenues for the government, it will allow them to untax actually productive activities, like wages, sales and fixed capital (including buildings if China continues to emphasize a higher tax in dense urban areas). The Land Value Tax - described by Milton Friedman as "the least bad" tax, and Henry George as the "Single Tax" to replace all others, could have the power to permanently and sustainably keep growth in the 3%-5% range all by itself. Coupled with China's demonstrated control over its currency production - producing more Yuan in downturns, when Western models allow private banks to pull back and starve the economy of credit-money - might add another 2%-4%.

Smart industrial policy and highly competent Central Authority (the reverse of America) will do the rest. China will succeed on its own terms, not the West's. Those who look for Westernization of China will be as disappointed as those who sell China short (the same group, actually). China's construction of "Ghost cities" is well known. But if the Land Value Tax was applied to these cities as well, the holders (read: speculators) of these lands would be forced to sell to a lower bidder, and China's huge migrant population would finally be able to afford to live in them.

China has learned from the West, but not just from the positive things like rewarding innovative technological growth, but from the negative experiences too. If they continue to be smart, they will avoid our boom/bust cycles, which, together with an austerity model governed by the banks instead of by Governments, threaten to permanently destabilize and retard the economies of Europe - which is entering its third recession in 6 years - and America, which has had a trillion dollar/year Output Gap since 2008, according to the Congressional Budget Office. America too, has choices. It can tax the Land, not the People, as China has slowly started doing, and as it has done in some small cities in Pennsylvania, most recently Altoona. It can also produce Government issued debt-free money to fill the Output Gap with public works projects, including the sort of infrastructure buildup China is doing - almost inconceivable under the Hodge-podge Western Growth model - using the Constitution's Coinage Clause (Article 1, Section 8, Clause 5), first practiced by President Lincoln in 1862-1863.

It can do both of these things and more, but not if it remains institutionally bound and theoeconomically moribund, to the banks' austerity models.

It kind of makes you wonder: Which is the Land of the Free, America or China?