Mr. Milsted asks: “Why don't we just give every citizen a chunk of money each month and be done with it? This is the idea behind the citizen's dividend. The Fair Tax people are proposing such a dividend to make a large national sales tax to replace the income and employment taxes. Followers of Henry George advocate a citizens' dividend based on ground rents. I personally prefer replacing income and labor taxes with a mix of excise, property (including copyright and corporate value), and possibly sales taxes, combined with a citizens' dividend.”

While the proposal to capture "ground rents" for public purposes and for distribution as a citizen's dividend is most closely associated with Henry George, the list of economists who have quietly confirmed George's analysis is fairly long. The amount of ground rent available to be collected is enormous; moreover, the public collection of this fund should be accompanied (as argued by Henry George) by the elimination in the taxation of legitimate forms of private property and earned income.

This distinction between earned and unearned income is one that must be made if we are ever to mature into a full employment society. A major challenge is that the taxation of real property has historically been a function of local government (i.e., municipalities, counties and school districts). Getting to the Henry George model of raising revenue in a reasonable amount of time would require assessment and collection at the state level, and revenue sharing both downward and upward by the states.

Such a nationwide change is unlikely to occur until government is so desperate that common sense becomes the necessary basis for policy decisions. Mr. Milsted is correct to argue for the replacement of our “current complicated tax code.”

I proposed to the President's Commission on Tax Reform an approach to accomplishing this that was, of course, ignored. While “ability to pay” is not the only appropriate criteria for where revenue is raised, we are on pretty safe ground asserting that those with the highest incomes derive a far higher percentage of that income by passive investment than from actual labor that produces goods or provides services to others. Thus, a restructuring of the Federal tax system to impose increasing rates of taxation on higher ranges of income remains an important component to achieve equity. We can combine progressivity with simplification by moving to a structure that eliminates all deductions and exemptions, except that all individual incomes up to some amount (say, the national median) would be exempt. This would effectively eliminate the Federal taxation of incomes of half the people in the United States – and nearly all people who fully “earn” their income. Above the national median, increasing rates of taxation would be imposed, up to some maximum. The rates and ranges would be set as a function of the budgeting process to ensure a balanced budget. There is no reason that state government could not make the same sort of changes with similar results. At the same time, local governments could be encouraged to shift taxes away from property improvements, away from the taxation of incomes and commerce in favor of capturing far more of the ground rent fund.

One way would be to provide the financial incentives of guaranteeing to make up any shortfall in revenue necessary to balance the local government budget (subject, of course, to regulatory oversight and standardization of the budgeting process by local government).

Edward J. Dodson
Director School of Cooperative Individualism
www.cooperativeindividualism.org