Political Theory

Imagining a Nation: Geoland Part IV: The Monetary System

“An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense…that gold and economic freedom are inseparable”

-Alan Greenspan

Part I, II, III

Despite the above quote, Geoland won’t quite run on the gold standard. Instead, the Geodollar will run on a gold peg. The only goal of the Geodollar is to consistently maintain it’s value against gold. So if gold rises in value against our currency, more Geodollars can be printed to offset the inflation. If gold starts falling in value, then we’ll have to print less until that equalises. The amount of gold you can buy with one Geodollar in 2020, should be exactly the same in 2095 (or close enough). I think an algorithm can be designed to spit out a number every quarter that helps keep this amount within an acceptable range, in the long run balancing out to zero inflation and zero deflation (against gold). But the bank of Geoland doesn’t have to keep any gold in its vaults, that’s the main difference between a gold standard and this gold peg.

It’s important to know how government money gets into our system, which most people barely understand (and it’s taken me a lot of reading and thinking to semi-comprehend it). Currently, the standard system is for governments to print money and lend them out to banks at very low interest rates, and these banks then lend them out to the public (or are expected to at least), they demand a higher interest rate and take their profit from the spread. Another, recently popular, system is quantitative easing (QE), which means that the government borrows money from the central banks that print them, and then use the borrowed money to finance their programs. It’s helped keep inflation of important goods like food low, but has tacked on to gigantic government debts and created massive asset inflation, creating a stark, uneven, and unearned lack of balance of wealth between the majority of workers and asset holders typically within the wealthiest 20,10, 1 and 0.000001% of society (getting exponentially starker the further up (or down) you go).

Our system will be different. Instead of a loan to a bank middleman, each citizen will be allowed to choose where the money is distributed, with the amount printed divided by the number of adult citizens equalling the amount that each citizen distributes: they can either send it to a government department, or a domestically focused charity. There will be strict rules for the charities, I couldn’t just start a charity dedicated to buying myself a golden toilet seat and direct the money there. I envision charities devoted to supporting the arts, education, scientific research, environmental improvement, healthcare, sports, and ones providing a safety net for those in need who find the citizen’s dividend doesn’t cover their more extreme situations. When citizens don’t have the time or interest to choose where their money goes, the President of Geoland will be allowed to choose how to direct those excess funds (but within the same rules: government departments or approved charities only). This is a still a system of debt and credit. But instead of expecting interest on our loans, we expect to be repaid in artistic creation, in scientific breakthroughs, better healthcare, sports, and charitable works. We expect a more interesting and prosperous nation as our interest. Although, even the worst case scenario, one that finances dull art, corrupt science, and self-serving charities, even that I would take as an improvement of the current system  employed by the real world.

In times of war however, the money all goes to defence, since we can’t borrow money, we’ll have to put our money directly to work in self preservation (and the citizens will have to approve of this cost they bear via a positive vote). It has to be a real war though with a clearly defined enemy and end-target, not some propaganda “war on drugs” type nonsense, nor endless regime change.

The second part to our monetary system is that we will accept private currencies too. Several smart thinkers have considered a system where a currency is supported by a basket of commodities rather than a gold standard. I like the idea, but because it’s never been run and tested, I don’t want to burden Geoland with it. However, if a bank wanted to create such a currency and lend it out, they’d be welcome to do so. Then, every year the citizens would be asked to vote on private currencies to consider paying taxes with and if at least 25% of the population likes it then our government must accept it. So, for example, if bitcoin became very popular in Geoland and a majority of voters wanted to accept it, then people could pay all or part of their taxes in bitcoin (at the market rate against the Geodollar). The citizen’s dividend would be paid out with the same percentage of bitcoins that we’d received. So if people paid 70% of their Land Value Tax with Geodollars, and 30% with bitcoin, every citizen in Geoland would receive their dividend in that same percentage. (In reality, the high volatility of bitcoin would be a problem, it’s just an example.)

This system is designed to build our society from the bottom up, rather than having everything trickle down from the top, (and it does trickle, you can almost hear the slow staccato drops of a man with a dangerously enlarged prostate trying to put out a fire by urinating on it.)

Lastly, we’re putting Henry George’s beautifully bearded face on any printed Geodollars, though if they decide to have a purely electronic currency, that won’t matter.

Political Theory

Imagining a Nation: Geoland Part III: Taxation and Distribution

Part I here, Part II here

“If you would have the slave show the virtues of the freeman, you must first make him free.”

-Henry George 

Land Value Tax

The main form of taxation will be the land value tax, hereafter shortened to LVT, a tax on land ownership in Geoland. (It could also be called a maintenance tax or maintenance fee, the name doesn’t matter). This is a tax on land ownership only, not on the properties built upon the land. An independent committee will have to estimate the value of the land. The typical rental yield of property in Geoland will be the basis for the LVT, and 80% of that yield will be applied as a tax to the value of the land. Henry George wanted 100%, but since we’ll never get a precise number, the 80% allows some margin for error. Because of different ways of measuring land values, taxpayers will be able to contest their taxes in an independent court system if they think they’re being overcharged. The Parliament can also contest the values in the same independent courts if they think the landowners are being undercharged. This is similar to how life works if you buy a flat: you own the property, but you still have to pay a maintenance fee to the people who manage the entire block of flats (if your income goes up, your maintenance fee doesn’t change, but if you buy a second flat in the building, your maintenance fee does rise, and if the maintenance costs go up, your fee also rises).

  • Citizens Dividend

A minimum 25% of revenue from the LVT must be distributed equally between each citizen. The closest thing to this in the real world is Alaska’s Permanent Fund, which pays out a share of oil profits to each citizen each year. Unfortunately, it has dwindled in recent years as the state has taken more for itself to try to plug shortfalls in the state budget, meaning less for each citizen. So the 25% is a hard minimum, constitutionally protected. To add even more incentive, the salary of the MPs is pegged to the dividend, so all MPs get a wage of five times the dividend (plus the dividend itself), the deputy PM gets six times, and the PM gets seven times. So if they want a wage increase, they have to either increase the payout to all citizens, or improve the economy which will increase the value of the land and thus the tax paid. Unlike most countries, where no matter how much of the citizenry’s wealth the politicians destroy, they always vote to give themselves salary increases, now they must feel the same pain their citizens feel in times of stress, and feel a financial motivation to counteract that suffering. We won’t rely on their sense of civic duty.

I made Geoland the size of Manhattan because a lot of work has been done on the value of Manhattan’s land. Assuming Geoland had the same economic strength and population size as Manhattan, this would work out roughly to a minimum dividend of $7,748 per year per citizen, I’d recommend all these taxes and dividends be paid quarterly (I show the maths at the end of the article). $7.75K isn’t much for Manhattan. If you’re in good health and don’t mind living in a shared shoebox and never having fun, you can survive Manhattan on a salary like that, but you will struggle. The MPs might double it (thereby doubling their own salary), and the people would be in a better position then, but we have to assume they’ll only give the minimum. It’s not much, but it is something, a base from which people can build from. Get even a low wage job and this dividend will offer a nice padding to your salary. And with no income or sales tax, you’ll get to keep all you earn, it’ll be cheaper to buy things, and more employment will likely be available due to a strong economy. Lose a job and it’ll provide some support while you look for more. Quit a job to start a business, and you’ll still have something to pay for food and rent while you get started. The dividend is not a panacea solving all issues, but it gives everyone a share in their country, and therefore an incentive to keep the country prosperous and peaceful. There will be other forms of support available for those in need, which I’ll get more into in the following articles.

This form of taxation would have brought in a tax revenue of roughly $50.4 billion in 2014 in Manhattan alone. The tax revenue of the entire NY state in that year was around $66 billion (add an LVT to Brooklyn and I’m sure revenues from just two nyc boroughs would well exceed the entire NY state revenue).

  • The Children

The dividend must also be distributed to the children of each citizen (managed by the parents or legal guardians until the age of 18). I realise the problem with this. It incentivises people to have ten children, keep them at home in front of a television, and just collect money all day. And if everyone does it, the land value won’t rise much, and the dividend will be stretched thin, until it’s almost nothing. I may be planting the seeds for Geoland’s own destruction here. But I think I must place my faith in the citizens, because the alternative is worse. There seems to exist a common conservative idea that if you don’t provide any financial support to children, poor people will just choose not to have them. Thus begins a battle against nature that the fiscal conservatives always lose, an idea so contrary to observable reality that I’ll waste no more words upon it. Poor Geolanders will have children. And if their children grow up unnecessary hardship, grow up in a nation that shows it considers them unworthy of support: those children will wreak havoc once they’re old enough, and the debt the country owes will come due (at high interest), with the costs of policing and imprisoning them.

The government (run by Parliament) can offer separate support to the children in the form of schools and playgrounds etc., and I hope they would. But there’s no constitutional law requiring them to do so. Therefore, to ensure that the children of the nation share in at least some of the wealth of the nation, they all get an equal share of the citizen’s dividend too. This equally helps to pay for tuition costs of private school, or to help a parent stay home to home-school their child if they choose. Some form of child protection will be essential of course, but we’ll begin with the premise that all parents/guardians in Geoland have their children’s best interests at heart.

  • Citizen’s Dividend v. Universal Basic Income (UBI)

I used to believe in UBI, but have since realised two issues with it. The first is that a set salary may be completely unrelated to a government’s ability to pay it out, and might bankrupt a government if it’s set too high, and might be of too little help if it’s set too low. The Citizen’s Dividend is paid directly out of tax revenue, so it can be afforded.

The second problem with UBI is inflation, specifically in rent. If everyone in Manhattan was suddenly given $10,000 per year, the rents would rise accordingly and the money would be concentrated in property owner’s hands only. But if the rent rises in Geoland, then the tax rises too as clearly the land is worth more, so the money goes back to the government and the people (this is for broad based rising rents only, if a single land owner builds another room in his house and makes more money by renting out that room, that has nothing to do with the land value).

  • Other distribution

A minimum of 25% of LVT revenues go to the citizens dividend. A minimum of 10% goes towards defence. 15% goes towards infrastructure (including government salaries, maintenance of roads and parks etc.). The remaining 50% can be invested however the MPs choose (except that they can’t use it to improve their salaries without raising the dividend distribution percentage).

  • Exceptions

The only land that an LVT does not have to be paid on is publicly accessible land held by the government for the benefits of the public. These include roads, parks, libraries, the river, a town centre (where people meet for political discussions and can shelter in disaster). Up to 49% of the land can be held this way, the other 51% must be available for private purchase. Land not tax exempt are Parliament buildings, the private homes of politicians, military barracks and things of that sort, since even though these are held for the public benefit, they are not accessible to the public (and even the government must pay tax on this form of land ownership). Private owners of land must always pay an LVT, regardless of how good their reasons not to might be (charities and religious buildings are not exempt).

Pollution Tax

This tax is applied to any pollutant that goes into the air, things such as propane, and also to imports from high-polluting countries. This can’t be used to replace tariffs, there has to be good reason to consider these countries as high pollution, and the Supreme Court must review the reasoning for any import-based pollution tax. If a country maintains a cleaner environment than ours, and the delivery method to our country is also clean, there can’t be a pollution tax applied to an import from that country. This is the only colonial aspect of Geoland, otherwise we’re mostly unconcerned with what other countries do, so long as they’re not threatening us. The level of taxation on these things is decided by the citizens, since each has to breathe these pollutants and live in the world that other countries pollute.

The revenue from this tax is used to pay for the independent committee that values the land (so that they remain unbiased in determining land values, since they’re not paid from that form of taxation). The citizens choose how any excess revenue from pollution tax is distributed (more on that in the next article on monetary policy).

Corporate/Entity Tax

The level of corporate tax is entirely up to Parliament. (Entity tax is for things like robot workers, and not relevant at this point in time). They also get to choose how it’s distributed (though again, they can’t add anything to their own salaries from it). I’m going to say they can’t have a true progressive tax (I finally found a constitutional right for corporations and robots), but they can have a de facto progressive tax with a form of personal/corporate allowance.

If I was in charge, I’d have a small annual filing fee for any form of corporation, a tax-free one million geodollars of profit allowed (and no tax filing required if revenues are under one million), and a 40% corporate tax on all profits after that first tax free million. I’d have it be a territorial tax system, so only based on profits in Geoland, but it doesn’t matter where the corporations are registered, if they’re selling to Geolanders (or selling Geolanders data), they’re considered Geoland corporations and must pay tax on their Geoland profits. They also can only deduct Geoland based costs (which might encourage them to hire in Geoland), not foreign costs. And it’d be based on total profits to the corporate owners earned from all their corporations, so a corporation earning 10 million geodollars per year can’t just split up into ten corporations earning one million per year to avoid taxation. If corporations don’t like it, they’re welcome to unincorporate and become partnerships or sole traders and pay no income or corporate tax, but also they’ll bear full liability in the case of a bankruptcy.

That’s how I’d do it, but there’s no requirement for Parliament to do that. They can have zero corporate tax or 90% if they want, but every corporation faces the same tax rate.

Voluntary Tax

Citizens (and non-citizens) are welcome to donate any money they want towards the government. It counts towards their tax payment calculations at election time, so if they haven’t been net contributors in the past five years, but now have the means and want to vote for an MP, they’re welcome to donate money to government coffers.

There’s nothing sleazier than a billionaire asking to be taxed more. What they really mean is: tax the middle class more and use me as the excuse. And I say that as someone who admires Warren Buffett’s investing career (I’ll always admire greatness), but if I didn’t believe in free speech, I’d demand that every time a billionaire publicly asked to be taxed more, half of their assets would be confiscated by the government. So if a Geoland billionaire wants to pay more in tax, he’s more than welcome to do so, our government won’t turn down free money.  

Postscript:

Maths and sourcing for the Manhattan citizen’s dividend payout:

Estimated value of land in Manhattan (in 2014, doesn’t include buildings or public access land): 1.4 trillion dollars

Source (https://ny.curbed.com/2016/1/7/10849000/how-much-is-all-of-the-land-in-manhattan-worth)

Census bureau estimation for number of Manhattan residents (in 2013): 1,626,159 people

Source (https://en.wikipedia.org/wiki/Demographics_of_Manhattan#cite_note-Manhattanquickfacts-2)

Gross rental yields in Manhattan: between 4-5% (real yields are lower because of property tax and other charges, but these are unrelated to the value of land), so call it 4.5% typical yield.

Source (https://www.castle-avenue.com/faq.html)

4.5% (average yield) of 1.4 trillion (value of unimproved land) equals: 63 billion. 80% of that equals: $50.4 billion tax revenue.

50.4 billion divided by 1,626,159 (the population) equals: $30,993.279

25% of that is the minimum citizen’s dividend, equalling: $7748.31