On property, taxes and power


Vagueness ahead so brace yourself or bail out.

My first summer jobs involved working on a construction sites. It was pretty clear what I was paid for. The municipality had buildings in need of repair and hired people to fix them. After that it quickly became more abstract. At some points I think I was doing R&D because other people elsewhere were doing similar things for other companies. The connection to company earnings was fairly thin.

This has lead to a weird situation where I sometimes feel disconnected from my salary or from the money I have in the bank. Its easier to make donations and pay taxes, because it doesn’t feel like my money. Why not give it to someone who has a good use for it. To be honest this isn’t the situation all of the time. Most of the time I’m, to put it nicely, frugal.

Because I sometimes feel disconnected from money it is not that difficult to think about adjusting how money changes the world. 1 through 6 are statements that may be true. A through C is my thinking based on those statements.

1. When someone works they use resources such as raw materials, energy and land. They also apply knowledge. Knowledge is like air, you can use it freely. If you buy (or borrow or steal) for example this book and read it, you can use any knowledge you gain in pretty much any way you like. So knowledge is in the public domain except for example for trade secrets and classified things, which presumably constitute a minor portion of the total knowledge. This could be true even if one defines that the importance of knowledge is defined by the ability to profit from the fact that others don’t have it.

Patents limit the freedom of using knowledge. You may know how to make a device that does what you want, but if there is a patent (in force) on that implementation, you are not free to use that knowledge.

2. For tangible things it feels like there is always a clear owner. A car or a bucket is someone’s property i.e. they own it. Meaning that they may use and sell it as they like and that others may not.

But it is not so simple. For many things it is easy to find examples that show how ownership is limited although details differ by jurisdiction. If you own a house you may need to pay real estate tax or property tax. If you acquire something in one country and want to move it to another you may need to pay duties. It may be an every man’s right to pick berries in the forest even on private property. When someone dies there may be an inheritance tax.

3. If the assumption that there are  natural property rights is not made, then all property, tangible and immaterial, is based on law (same as force).

Laws change, so for example a copyright can be extended. In the static picture some lose and others gain. Based on changes in incentives various claims can be made about the dynamic situation. As the value of something changes then the incentives of creating and acquiring it change too. It’s not always very clear but in some cases it is easy to see. If a tax on gasoline is raised then the value of low mileage cars tends to drop and people tend to buy cars with better gas mileage.

4. Money is power to make others do what the owner of that money wants. Its not the same sort of power as pointing a gun on someone, but much better. When paid, people don’t just do what you tell them to, but sometimes also want to do it.

Money is also almost the same thing as property and in many cases they are interchangeable. When there are working markets for something the exchange can be done with little loss.

Accumulating money means accumulating power. Power makes it possible to change the rules. Changing the rules to favour those in power gives them more power. If only a few have a lot of money the system can become unstable.

5. People tend to attribute their successes to the effort they have exerted and to the talent they have. This is partly true; success is unlikely without trying and talent may have something to do with it. It is also wrong.

To be able to use talents and function in pretty much any society, let alone in a modern one, a lot of knowledge is needed. Some of it may be independently discovered, but most of it other people discovered long ago and it was passed on for free.

6. Well defined ownership through the rule of law seems to be necessary for a society were well-being is distributed fairly evenly and power stays in many hands. It also seems to lead to larger total well being.

A. It is OK to tax various things. Be it property or income. A tax is a disincentive so care must be taken on how to use the instrument. Taxing work will lead not only to tax evasion but will also lower the incentive to work. Taxing CO2 emissions will lead to smaller emissions, but may make things we like more expensive.

B. If a medieval society is not the aim, power of individuals must be limited in some fashion. Taxing income and property can be used to achieve this.

C. There should be a progressive property tax limiting the wealth of individuals. For example if the value of an individual is over 25 M€ (or $) anything over that could be almost confiscated by the tax every year.