Reply #88: There are two types of interest [View All]

[dcfirefighter]

one good one bad.

Real interest, what you get for letting someone use your machines, factories, tools, knowledge, buildings etc. is a return to Capital. This is good. We want to encourage people to build machines, factories, tools, knowledge, and buildings. These are the things that employ people and improve living conditions.

The other kind isn't really interest at all, it's RENT. It's what you can demand payment for if you hold the legal title/license/permit for land, extraction rights, pollution rights, broadcast rights, patents, etc. Allowing individuals to collect rent leads to inefficient allocation of resources. For example. Say my parent's left me a valuable lot on Madison Ave in Manhattan, nestled between two skyscrapers. Say I don't do anything with that lot, but pay taxes on it. Perhaps I put a parking lot, or a small bodega on it, just enough productive investment to pay the property tax. It's a valuable lot, so taxes are significant, but they are a mere fraction of the taxes on the lots to either side. So, here I am with my title to that lot, which is worth many millions, and yet all I have to do is pay a pittance in tax to keep my title. A title that was created by government decree. From a government that was created of, for, and by the people. Heh. What a deal.

I could sell that title for millions. Or I could wait and sell it for millions more. Or I could lease that lot for a couple million a year. Yet I've not made one bit of productive investment.

If someone wanted to build an apartment building that would house a 100 families on that lot, they'd have to meet my price. They'd have to take out a loan that cost them a million dollars a year, just to buy the lot from me.

Now, if NYC decided that they wanted to tax only land, and not buildings, suddenly the tax on my lot would go way up (and the tax on the two neighboring skyscrapers would go way down). What could I hold out for? A higher price for my lot? Who's going to pay a bunch of money for a lot thats going to cost them a million dollars a year in taxes? No one, that's who. That lot is only worth a million a year. When the city didn't tax it, I could charge someone a million a year to use it. But if the city takes a million a year to recognize the title, that doesn't leave much for the landowner. So I have to sell, and sell for a pittance. Either that or build on it myself, but I'm not the productive investment type. So I sell it to the ABC Development Co. They were going to have to spend a million a year on the lot, either way. They're real happy though, that they (under the wonderful new tax scheme) don't have to pay any taxes on the building. So they're going to build one hell of a building. They're going to build a $100 million building. 500,000 s.f. They're going to have to employ an army of workers to build it. They're going to have to employ a small army of workers to clean it, secure it, operate it, and maintain it. This building is going house 100's of retail and professional jobs, as well as provide homes for a 100 families.

So which sort of investment do you want to tax? Good investment, or speculation? I say tax speculation. Tax land values. Tax licenses and permits. Heck, tax high incomes for all I care. Just don't tax buildings, or factories, or work equipment. It keeps people out of jobs, and keeps wages low.