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General News    H3'ed 11/24/13

Rent is 50% of a Nation's Income. Time to Collect it?

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- The reciprocal relationship between rent and the tax burden does not diminish rent; rather, a proportion of total rent is disguised.

Today, Locke's thesis is most thoroughly documented by Mason Gaffney, the American professor. He formulated an acronym for Locke's thesis: ATCOR. All taxes come out of rent.

To calculate a nation's total rents, we must first establish the amount people pay as   "taxes".

- In the US in 2013, tax revenue was $5.3tn (GDP: $16.2tn). Using the ATCOR formula, we conclude that, if America was a tax-free zone, this revenue would revert back to rent.

About one-third of US income is converted from rent into "wages" and "profits" through anti-democratic political and bureaucratic channels .

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But if revenue collected by government is ultimately out of rent, why argue for the need to collect that revenue directly? One answer: this would raise the productive capacity of the population. Why? Because taxes inflict "deadweight losses" on society.

If rent revenue is collected in a direct way, productivity is raised by a significant margin.

Rents in Private Pockets

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The next question is about the proportion of a nation's revenue that is visible as rent. This is rent that is not collected by government. Economists have no idea of how much rent is circulating in the modern economy.

For current practical purposes, the prudent estimate is that rents in private pockets amount to about 20% of national income.

- In the UK, researchers found that rent was 22% of national income in 1985, rising to 29% in 1989. But 1989 was a peak year in the property cycle, just before the recession of 1992. Allowing for the distortions caused by land speculation, the "normal" year estimate for the UK would be for 1987: 21.8%.

- In Australia, researchers -- armed with one of the best official data sets in the world -- calculated that rent in private hands in 2012 was 26% of GDP. Rents in that year were inflated by abnormally high urban and commodity prices (one of the ripple effects of trade with China).

Adding up the "Rents"

If we take a random selection of 10 rich nations, ranging from Australia through the US to Sweden, Germany and Japan, the average tax-take as a percent of GDP is 37%. In ATCOR terms, most of this is rent in its disguised form (collected as if they were "wages" and "profits"). If we add to this the rent that is not collected by government, of around 20%, we find that rent exceeds 50% of national income. This first approximation of rent needs to be adjusted for several reasons.

1.    Taxes distort total income. They encourage the

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- Under-use of urban land (which artificially raises rents). and they

- motivate behavior that damages the environment, as when polluters do not have to pay for dumping waste into the atmosphere (which artificially reduces rents).

2.    A small part of tax revenue may actually fall on wage earners, rather than being shifted (ultimately) onto rent. People with no bargaining power are particularly vulnerable.

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Fred Harrison is Research Director of the London-based Land Research Trust. He is a graduate of University College, Oxford, where he read Politics, Philosophy & Economics. He also studied for the MSc at Birkbeck College, London (1973-74).

His first book, published in 1983, The Power in the Land, introduced his concept of the eighteen year business cycle based on land value fluctuations.

His activities revolve around three core campaigns:

Truth in Politics

Fred campaigns for honesty in politics. In his forthcoming book, The Renegade Economist, he exposes the myths and falsehoods espoused by "experts" who claim to represent the people and the truth.

Truth in Economics

Fred was the only economist to (more...)

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