Why do some end up with so much while others have so little? Why don't "progressive" income taxes spread the wealth? Why is the rich-poor gap still widening? Why are there a shortage of jobs when there is plenty of needed work to be done? Why are there jobs that pay so little that we have working poor? Why are welfare and disability payments below the level where people can live with dignity and have options?...
Governments trot out the same old ideas: housing subsidies, minimum wage laws, slogans like "the best anti-poverty program is a job", yet unemployment and poverty levels don't doesn't budge.
Poverty results from the absence of adequately paying jobs, the maldistribution of wealth and high price of housing. And these problems are caused by our tax structure which rewards speculation and disincents manufacturing.
Poverty is not an intractable problem.
* When we tax things produced, we are taxing the jobs that produce those things. This creates unemployment and raising prices – and makes people poor.
* When we tax income, we take money from people and make them poor.
* When we tax sales, we raise prices and make it more expensive to be poor. Tariffs do the same thing.
* When we tax buildings, we’ll have fewer buildings and they’ll be more expensive.
We can subsidize poverty by giving money, food and housing to the poor, but that doesn’t get rid of poverty. Instead we should replace all those anti-poor taxes with collecting a percentage of land values and thus share the wealth among all citizens, both renters and owners. As well, collecting land rent will put urban land into fuller use and reduce suburban sprawl.
Wealth is created when human labour is applied to nature. This wealth, other than wages, dissipates away from those who create it and percolates mostly to land values. The owners of land, therefore, collect most of society's "surplus" wealth untaxed and without any effort on their part.
This surplus wealth is called "economic rent", and rightfully belongs to the society which created it, and therefore it should benefit all citizens by being used to fund government programs.
People and businesses who engage in production rarely get rich. With very few exceptions most people or businesses who accrue significant wealth do so by collecting unearned income (economic rent), with no effort on their part. They are allowed by our tax system to pocket windfall profits that justly belong to everyone equally.
Example 1: Conventional oil costs about $30 to produce, so when it sells for $100 /b, oil companies pocketing about $70 per barrel of economic rent. This wealth rightly belongs equally to all Albertans and all Canadians, as oil is a gift of nature.
Example 2: Land generates about 4-6% in capital gains per year which flows to the land owner tax free if it is their principle residence or farm. A typical homeowner collects about $10,000 of untaxed capital gain every year, while people who rent receive nothing, which helps explain seemingly intractable poverty amid great wealth. Like oil rent, the unearned rent of land belongs equally to all, and should be shared by all citizens to help eliminate poverty.
Homeowners pay taxes, of course, but receive most or all their taxes back in unearned income gains. Renters pay the same amount of taxes but receive nothing back. To prove this subtract your tax paid from the economic rent you collect.
Economic rent is about 25 - 30% of every economy, and while governments collect a little of it (some from the land portion of municipal taxes, capital gains taxes, natural resource royalties, parking fees, EM spectrum auctions, and fishing, camping, hunting fees...), most of it is privatized.
Municipal, provincial, & federal governments collect taxes equal to about 30% of the economy, which is the same percentage of the economy that is economic rent. This means all taxation could be replaced by fees on the use and abuse of the commons, which would go a long way toward right-pricing nature to ensure sustainability. (More Pigovian taxes could be added as required.) Unburdening the productive economy would generate (green) value-added wealth, more jobs and innovation.
Canada's tax structure is backwards. We socialize private wealth by taxing incomes & profits and we privatize public wealth (rent), which is bad for the planet, bad for the economy, and bad for morale.
Land Value Taxation is actually a rather powerful tool for solving issues of poverty in a permanent, root-cause fashion (its original purpose). The property tax is actually two taxes; a tax on land and a tax on improvements (buildings), and we should untax human effort of brawn and brain (buildings) and uptax what comes free from nature (land).
When you purchase "property" you buy the buildings and the land beneath them. The buildings depreciate but the land appreciates. Buildings don't appreciate since they are always only worth their replacement value but land can't be replaced, therefore it constantly goes up in value (about 5% per year).
Subsidizing housing costs is self-defeating. The cost of housing always rises to what the market will bare, which means landlords will always charge just below the homeless rate of tenants. This is a hard rule, landlords have no choice, or face bankruptcy themselves, since the price of land rises automatically to what the market will bare, which takes all the landlords' "excess" profits. So raising payments to the poor is pointless, poverty cannot be solved this way.
The reason for poverty in the midst of great wealth is that wages are established at the margin of production. The margin of production is the lowest wage a person can earn and still survive. Employers always bid down salaries to the point of starvation and homelessness, they have no choice, this must happen or else the employers would go broke themselves. This is a hard rule. The left wing solution is minimum wage laws, but these only through people out of work. Unions help, but only partially, temporarily, for some of the population, and effectively drive all non-union wages lower, expanding the rich-poor gap even more.
The solution is to raise wages (the margin of production) to allow so everyone can afford to live with dignity and options, but this can't happen if capital is constantly incented to move to speculative profits and away from production profits (jobs). Only when governments collect the economic rent generated by the economy (in lieu of income and sales taxes) will capital will have no choice but to move to the productive economy, creating jobs.
This change (green tax shifting) will cause competition for people, not competition for jobs like now. Wages will rise, and housing (owning or renting) will come well within the affordable range of everyone.
For those who can't work (seniors and people with disabilities) a income supplement is in order, since these payments (funded out of economic rent capture--not income, sales or business taxes) will not distort the rental and housing market to any significant degree.
An economic rent recovery system will have three benefits, 1) the reduction of poverty, 2) the re-invigoration of the economy, 3) preservation of the resource base (nature). All three of these components are in dynamic balance, all three at once are necessary to address poverty. Eliminating poverty can't be done under the existing tax structure.
Under an economic rent capture system there would be competition for people, not competition for jobs, like there is now. This is because capital would no longer have an incentive to invest in rent-seeking and would have no choice but to invest in the productive economy. This would raise the marginal wage rate well above the present minimum wage, eliminating the working poor.
Under land value taxation people would have more access to land and resources which would no longer be locked up by monopolies and if they didn't like their job they could could readily quit and start a business.
And the economic rent collected by gov could finance a Citizens Dividend to keep those on pensions above poverty rates.
Geonomics would invigorate the economy by incenting business to engage in value-added and labour-intensive production creating far more jobs then the former speculative economy generated. Plus shifting the tax burden to the use and abuse of nature would conserve the planet.
The absence of jobs creates poverty. Minimum wage rules kill jobs, as does taxing people with jobs and taxing businesses that provide jobs. Alternatively, collecting rent improves the economy and generates jobs, in fact, the more rent that is collected, the better the economy works, the more jobs there will be, and the higher the salaries will be. Not collecting the economic rent damages the economy and kills jobs.
Existing home owners may complain, but actually, any home owner with a mortgage will not notice any difference, because what they now pay to the bank in interest charges on their mortgage, they would instead pay to government. The interest is basically equal to the economic rent, so instead of paying the bank you'd pay to the government in lieu of income taxes, a superiour system.
And when everyone in society is given their fair share, those who now are marginal participants will participate more productively in the economy, more education, more diversification of labour, more business start ups, all of which would produce more wealth which would benefit everyone under a rent recovery system, so the rich will still be rich or even more so. Wealth is not a zero sum.
Plus when the wealth is shared there is less moral guilt, fewer government programs to "help" the poor, less crime, lower policing and incarceration costs..., win-win as they say.