A Simplified Taxless State: A Proposal (part three of three)

in #liberty8 years ago

In this three-part series, I'm going to show how a state can be a pure market actor and not require taxation. The state will still have an income - cynics would call it taxes under any other name - but the key difference is that the income is obtained through market means, based on a state's USP, and not through coercion by force. This leads to a society where the state does not need to know anybody's income, wealth, or transactions, leading to the obsolescence of most registers and reporting requirements (including the elimination of a corporate register), and where a "black market" is a contradiction in terms, as the state does not interfere with the market it is a natural part of. It also means an end to victimless crimes by its very nature.

Image: plots of land

Recap

In part one, we observed that there are different tiers of land ownership, where a higher-tier owner (say, a landlord) has the say over which lower-tier land owners get to believe they own the land - and that the highest-tier land owner are today's states (countries), which are the only actors capable of repelling other tier-one land owners. Thus, a state is the only actor capable of owning land, and can therefore lease it to lower-tier actors to generate income.

In part two, we see that this proposal leads to a low-friction economy where there are no taxation, reporting, or recording burdens on any transaction, and which therefore is in prime state to maximize the sheer quantity of value-optimizing voluntary transactions, thereby creating wealth better than the economies in competing states. Further, we observe that all taxes - income tax, corporate tax, sales tax, etc - go out the window. In turn, we also see that there is no tax wedge at all which would prevent profitability of division of labor, and therefore, this proposal also enables an efficiency optimization not present anywhere else.

Part Three: How a land lease would work

This leads us to the question of how such land leases would work in practice, since it's absolutely crucial to get the incentives right. We want to encourage development and land improvement that facilitates additional trade, after all. We also want to facilitate urbanization, as physical proximity of people naturally increase the number of trades taking place. This is therefore a proposal with all its possible flaws for further development.

Shitload of money

Absent a tabula rasa state where there is no existing ownership or lease of land plots, a proposal like this must relate to the previous order of things. It is therefore desirable to mimick the current tier-two ownership of land as closely as possible, maybe even to the point of calling the lease a "land ownership tax" under any other name. Economies do not respond well to changes to fundamental frameworks and we want to minimize systemic disruption while optimizing wealth and efficiency potentials.

In particular, we want to ensure that market actors feel secure in investing in their land plots - to make sure that there's no yearly bidding process or similar where they can be overbid after having spent enormous amounts improving their plot. Therefore, it's important that a lease lasts until surrendered one way or the other - closely mimicking the way we think of ownership. However, the lease contract can and would typically stipulate that pricing will vary with market conditions - possibly within a limited scope, to reduce risk to land improvement on the plot.

When a lease expires, though - either due to being surrendered or due to serious lapse of payment - the plot can be auctioned off to a new lease for proper price discovery, and this can be weighted in to the general price landscape of the area. More on this later.

Thus, only a very small part of the population would have to deal with the state at all. The rest would have a functioning economy that just needed to feed landlords for their lease costs, and that could work however they please to set up a low-friction economy.

Grandfathering and Initial pricing

This leads to the question of how you phase in a system like this. Realistically, you'd need a lot of political capital and a desire to move the entire state construct in this direction, so we can safely assume that a lot of the current state expenditure will be cut rather unceremoniously. Regardless, at the end of the day, you'll have a budget which states an income you desire for this state construct. Let's call this number X for now - an income which will need to come from land leases, and only from land leases.

I propose this X be divided across all current plots of land by area, weighted by the square root of nearby population density, so that the total leasing price arrives at X plus some safety margin of about 5%. This solves a number of problems and doesn't solve a few others:

First, leasing the plot price proportional to land area makes sense - that 1 km² costs half of 2 km².

Second, making land significantly more expensive in cities than out on the countryside also makes obvious sense (hence the weighting by "nearby population density" - a number which will be single-digit on the countryside and four- or five-digit in the cities).

Image of land development

Third, why weight by the square root of population density, rather than linearly? This is actually rather important, because if the weighting was linear, you would not gain from trying to stack people more densely together in land improvement. But when weighting logarithmically, by using the square root, we're creating an enormous incentive to use land in the cities more effectively, to house more people per square meter - essentially a developer getting more rent income at a lower land cost. If the weighting was linear, an increase in people would correspond to a linear increase in land cost, removing this incentive.

What this doesn't factor in - can't factor in - are the sparsely populated and hugely expensive areas, akin to the mansion area in Beverly Hills. It also doesn't factor in resource deposits (a gold mine in the wilderness would be dirt cheap, and this may need adjustment to enter ballpark of reason). But the next section fixes that over time.

In any case, with this weighting, we can set our initial state income from contractual land lease by applying X over the respective plot weights. This assumes, of course, that the existing plot owners choose to agree to those leases - but most plots of land should find a customer, and the 5% safety margin above is to factor in a certain initial healthy vacancy.

Adding market incentives to pricing

After the initial pricing, when leases are terminated by the customer (or the customer defaults on payment), land plots can be auctioned for lease moving forward. This creates a price discovery mechanism for the general area that can be factored in to the nearby plot lease pricing according to some to-be-determined mechanism that's left as a minor implementation detail.

We're also creating a secondary market where customers can trade leases directly between themselves, in what was previously buying and selling plots of land in tier-two ownership. This also assists in price discovery and highlights value differentials in the market.

Problems and considerations

With a shift in how you regard a state as large as this proposal, there are a number of problems and questions to consider.

One of the first is whether someone can opt out of the lease entirely and still occupy the land, excluding others from its utility. The answer to that question, under this proposal, would be no. Such a mechanism would create an incentive to let all the border plots of land pay for the military defense of the entire country. It's noteworthy, that under Land Value Tax philosophy which is similar in implementation but not philosophy, a payment for lease of the land is also a compensation to the community for a right to exclude other people of the same community from said land - after all, land property is of a completely different type than property you can hold in your hand and move physically, like an apple. But this proposal focuses primarily on the state as a fair market actor, rather than justifying a taxation with some obligation to compensate others for exclusion.

Still, in the realm of politics, this proposal takes the state construct 75% of the way toward such an opt-out being possible in the future.

A second good question is whether this isn't just a reset button on state power, and which would enable the state to slowly grow back over time. This may be true, even if the proposal severely hinders such a growback by getting rid not only of taxation mechanisms, but also of the taxation discovery mechanisms (transaction reporting and recording infrastructure). That said, a hostile takeover could build such structures back over a 20-30 year period. But expressed differently, if you did have a reset button on the state's ability to commit violence, would you not push it?

A third question that has popped up is the existence of a social safety net. There's nothing in this proposal that precludes the state from providing civil services. For myself, I'm a warm proponent of Friedrich Hayek's and Milton Friedman's proposal of a Universal Basic Income to all citizens, as it does not require any bureaucracy at all for qualification, and allows the recipients to provide price discovery in how such a small basic income is best spent.

Conclusion

A state can be a pure market actor and not require taxation. This enables enormous gains in efficiency, as the tax wedge can be completely eliminated, and enables wealth creation through maximization of the quantity of voluntary trades. Doing so does not preclude civil services or a social safety net. The proposal also allows for the elimination of all state databases except the citizen registry and the land registry, drastically reducing bureaucracy, and eliminates victimless crimes just by its nature of being a market actor.

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One of the first is whether someone can opt out of the lease entirely and still occupy the land, excluding others from its utility. The answer to that question, under this proposal, would be no.

If we're being consistent, the answer to that question would be "Only if they can defend it from the previous tier-one owner." The definition of a tier-one owner appears to be "One capable of defending land more effectively than anyone else can attack it," and it hardly makes sense to snapshot the tier-one owners now and declare it to be the final configuration and regard all new tier-one owners as illegitimate.

Well yes, indeed. But it would be quite a show of fireworks to see somebody try to put their private arsenal against that of a modern country. I'd want the big bag of popcorn and would quite likely not cheer for the country.

I have not yet read the other parts, but am inspired and glad to come across this article. thank you for your writing and proposal. All for one and one for all! Namaste :)

nice post

I am opting out. ; )

Realistically, you'd need a lot of political capital and a desire to move the entire state construct in this direction

Create a blockchain that works so well it takes care of this on its own. I can only see this working if all the leasing and expenditures are done on block-chains (or better) under smart contracts. The state as we know it has got to change too, paying the state is sickening thought to me. The idea of paying smart contracts might be something we can tolerate.

A Universal Basic Income would be ideal here too so people without an income would always have the right to occupy and farm land too. Smart contracts could ensure this money is not mis-managed.

Create a blockchain that works so well it takes care of this on its own. I can only see this working if all the leasing and expenditures are done on block-chains (or better) under smart contracts

That's a feature of this proposal: it very much encourages a reconstruction to more efficient market technologies like smart contracts as you describe.

I am a smart-contract developer, and this is my biggest 'dream scenario' for the way 'government' funds are 'handled'.

Ties nicely into what I call "cooperative agorism", which is both sort of a "gradualist" (that's a socialist term though) approach to implementing and maintaining anarcho-capitalism in spite of potential natural tragedies that could strike any society; Such as for example a sudden draught, a spike in unemployment or some instances of child poverty, which If left unchecked even just for a short time, could lead to an increased demand for the state.

The implementation of capitalism and the prevention of such a crisis is accomplished by entirely volountary cooperatives, that ideally would make money from their support for the markets; their agorism. These organizations must "outbuild" the state in the white, grey and black markets, so that the state becomes visibly obsolete.

A cooperative and its members could be backed by a decentralized currency with an inbuilt UBI / similar solution, or such a cooperative could "outsource" such concerns if they/someone else came up with a more nimble market mechanism for "commoditizing" unemployment. (I'm thinking bond markets etc)

enables wealth creation through maximization of the quantity of voluntary trades

Here, here!

You have my vote.

Often when people say we need to get rid of the government, the response to that is; but then what? what to replace it with?

well ... 'something like steemit'

I see steemit as a very important stepping stone, this will already force a paradigm shift. And just like bitcoin was the stepping stone for steemit ...

We will eventually have our anarchistic system to replace the government ... it's inevitable.

This is where it all starts! This is history in the making!

An anarchist system?

A system? Oh my. Oh myyyyy.

What an interesting, and even terrifying, use of words.

in anarchy there are still rules, and systems, it's just that they're based on consent, not violence

You don't need to shout.

Cg

I'm not shouting, THIS IS SHOUTING

I appreciate the bidding mechanism to determine the price for land. It would keep the state from acting as a monopoly in terms of setting prices on land leases.

I don't see how this system addresses tragedy of the commons issues. For example, carbon emissions are hurting everyone. Everyon's property rights are violated by production of carbon emissions. I assume this is one of the areas you would describe as a "victimless crime," but I would argue this is a victim filled crime that is so distributed it is hard to address.

What do you think about something like carbon emissions? Do you think we should just let people produce as much carbon as they want? If not, how do you address it in this system?

More technology, not less, has always solved environmental problems. These problems have a tendency to go away as long as you allow people to develop the land with the latest and most efficient technology. (For an example, look at the cost of solar power and how it's dropping dramatically.)

Otherwise, I detail in part two how to deal with pollution in general (just like any damage to a lease, essentially).

I'll take a look at part two already. This is the explanation you provide about how to deal with environmental pollution, "Oh, and what about pollution, which is the most common objection to this? How would this scheme handle pollution? That's actually one of the easiest things in this entire picture. Remember how, when you lease a residence, you're liable for any damages caused to the residence by you during your lease? The exact same standard boilerplate could just as well apply to a land lease, and it's as simple as that."

So, does this mean that with the situation the climate crisis that each person driving a vehicle that is emitting carbon dioxide would be address with class action lawsuits filed by citizens of the world who decide to sign on to the class action suit?

carbon emissions are hurting everyone - allegedly

Yes, I'm sure that political associations make global warming seem like nothing but another "think of the children" type of bullshit, but politics aside, the atmosphere and what it is composed of does affect humans. More carbon dioxide will raise temperatures, and that will cause problems for human civilization.

That is just how it is. How politicians use that fact is up to them.

will raise temperatures - depends on how much. Might not cause top many problems and might even be positive. We don't know.

It will raise sea levels, and that will destroy coastal cities.

Water expands when it gets hotter. What else global warming will do is not quite known to me.

I see now we moved to global warming. I though we were talking about carbon.

What do you mean, "allegedly?" Do you think the climate crisis isn't real?

It sounds like it's just a State Reset button to me...

Things were done similar to this in the past and it got to where we are today... not sure why this time would be different?!

Even if it is: if you had a State Reset button, would you not push it?

Possibly, as long as it doesn't interfere with the technological explosion that has coincided with it the first time.

@falkvinge I graciously appreciate the awareness you have brought to the relationship between the "Blockchain" and the "State".

The Blockchain is tier 1 owner.
Private Keys are tier 2 ownership.

I was in the falconwing with a different alias :)

I have a question...

 we're creating an enormous incentive to use land in the cities 
 more effectively, to house more people per square meter
- essentially a developer getting more rent income at a lower land cost. 
 If the weighting was linear, an increase in people would correspond to a 
 linear increase in land cost, removing this incentive.

This appears to be the basis of the idea - Harvesting people is the most beneficial economic activity for the "State" to protect.

And so to my question:

What happens if no people inhabit that land but it is agriculture... or server farms?

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