A liberal state (1)

A video presenting the views of Janusz Korwin-Mikke who was previously mentioned on da-boss:


has made me take a fresh look at the concept of a liberal state.  One reason I am finding the liberal vision so appealing is that it does away with the tedious complexities and subjectivity of socialism. An example of a crisp solution to the otherwise curly problem of funding the state institutions is Korwin’s proposal for a reform of the taxation system.

To understand where he comes from we first need to appreciate that the liberal concept of taxation differs from that of the Left. In a liberal state tax is not there to re-distribute wealth from the haves to the have-nots but merely to ensure everyone pays for the federal services they are consuming. The liberal state has no stake in the economy so the wages are not taxed. The limited functions of a liberal state administration include maintaining the army and police. So, what are the army and police protecting? The land and improvements to the land. Consequently, the land tax has two components.

Assuming all land mass of a country is protected by the army the costs involved should be split between land owners based on the size of their lots. This way it is very easy to assess how much tax is owed and the formula is completely objective. Estates will attract more tax than quarter-acre lots not because the state targets the wealthy but simply because they “consume” more defense spending. Nice and easy. The other component of the land tax, relating to the property value, is even more elegant. The army and police are not just protecting the land but also the improvements – buildings, farm infrastructure, forests. For the purpose of tax allocation a property is deemed worth … whatever the owner declares! So, if it is worth a million dollars, a tax based on a capital value of a million dollars is due. This is as objective and simple to apply as the land area formula.

Ok – but what if someone deliberately lowers the value of their property to pay less tax? This is where market forces come into it. The database of all lots of land, including their declared value, is made publicly available. Anyone anywhere willing to pay 140% of the declared property value can make an offer which, subject to the basic legal checks, becomes a binding contract. Since no reasonable person should be unhappy with an offer exceeding what they think their property is worth by 40% it is a win-win situation. Exactly the same process is employed when the state buys land for public works like new roads etc – 140% of the property value is paid and the bulldozers move in.

This system is so delightfully simple that you may wonder how come no-one had thought about it before but actually it was first proposed by Napoleon Bonaparte. The land/property value combo tax eliminates the official property valuations in all their forms, legal challenges to the state valuations when land is required for public works, different formulae for urban vs rural land tax etc. It also does away with the huge administrative burden of running the current system – a single website can contain all the information required to calculate the land tax in a country. While the savings involved are enormous what appeals to me even more is the ultimate simplicity and objectiveness of working out how much tax is due.

To contrast the liberal state philosophy with socialism I will use another example. The issue is completely different but what I am juxtaposing here is the style of the approach, not the problems dealt with. A few days ago I watched a current affairs doco on the TV on the labeling of processed foods. The state institutions have long required that the ingredients of packaged food be clearly printed on the package. This is the good old “flour, eggs, milk powder, salt, may contain traces of nuts” kind of thing. But this was not deemed enough and, at some point, chemical composition was added: “carbohydrates 25g, monounsaturated fats 8g, sodium 2g”. Then, under pressure from the state regulators, a recommended daily intake (RDI) appeared: “carbohydrates 12% RDI, sodium 20% RDI” etc. All this to make it easier for a consumer to decide which packet of biscuits to buy.

But there is another change being discussed now. The people are deemed too dumb to read the ingredients, chemical composition or RDI labels so a system of traffic lights is proposed. It will look like a list of key components, say “carbohydrates, fats, sodium”, each followed by a pictorial representation of a green/amber/red light depending on whether the stuff comes in the right amount or there is too much of it. Of course the system will need to be first set up by the state and then policed to ensure compliance. The food makers will try to cheat on the size of the lights, challenge the scientific basis for the red light triggers etc. Already, the dry noodle suppliers have declared they would go for a dispensation from high level of salt because most people only eat the noodles and tip the broth in the sink. I guess if this challenge succeeds Amatil will be free to argue that many consumers dilute Coke with water…

So, on one hand we have a liberal proposal which deals with a very complex issue by designing a transparent and virtually maintenance-free tax system. The assumption is that the citizens are responsible people who are equipped to decide what their property is worth. On the other hand we have a nanny-state socialism at work trying to sort out a relatively trivial problem of labeling food. Because, in this approach, consumers are idiots unable to read, an array of increasing dumbed-down labels designed to suit their mental level must be introduced. The system is fiddly, subjective, complex and expensive to police.

It is hard for thinking individuals not to be liberals!

A liberal state (2)


4 Responses to “A liberal state (1)”

  1. Nick Says:

    Sorry, Voytek, I did not understand the concept of a liberal state’s tax system. Do I pay taxes if I do not have any land?

  2. da-boss Says:

    Liberal state provides a very limited range of services which include internal and external defense, some basic administration and diplomatic representation, judicial system etc. It does not provide social welfare based on the redistribution of wealth. The taxes are as user-pays as possible; meaning that whoever consumes a given state service is expected to pay for it. The army protects the land and what is on the land so the property owners are the ones funding the army. The wages are not taxed because the state has nothing to do with them. The economy is run (or actually: runs itself) as free market. I think there may be a poll-tax to pay for state administration and diplomats representing all citizens but certainly no income or transaction taxes. Poll tax means that all citizens pay the same – the Bill Gates’ have the same diplomatic representation as anyone else so there is no reason to tax them more for it. But of course there is no public education or health service – people have more money in their pockets are have to make their own arrangements with the commercial operators. And no compulsory food labeling…

  3. Nick Says:

    OK, what about infrastructure? Toll roads and toll streets everywhere? It won’t work without taxes.

  4. da-boss Says:

    Toll arterial roads and whatever local councils/boroughs decide they need for local traffic in the suburbs. Private airports, airlines, trains, bus companies, water supply, power generation. This is not a total utopia – the US were run like this until the trade unions took over in early 1900s.

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