From: jim@netlink.cts.com (Jim Bowery)
Newsgroups: sci.econ,misc.taxes
Subject: Net Asset Tax White Paper (part 2 of 7)
Date: 15 Apr 92 20:31:59 GMT
Organization: NetLink Online Communications, San Diego CA

But in modern technological civilization, the common assets of
scientific knowledge, public domain technical knowledge, defense, law,
infrastructure and education dominate our society.  Perhaps at some
point space will become a physical frontier and allow real property
rights to become as important as they were during the 1800's, but at
present, Henry George's approximation is a poor one.  Indeed, it has
never been a good approximation in urbanized areas, which is a major
reason that Henry George's "single tax" ideas have failed to find
great currency in political and academic circles.
 
One of the greatest strengths of Henry George's land tax was that it
would have promoted a much more rapid development of the American
frontier by allowing the government to simply open more of its
territories to private claim, without worrying about unproductive
hoarding of those territories.  
 
Because of this fear of hoarding, the government resorted to a highly
political system of land grants which created the rail road trusts
that became a persistent blight on society.
 
  Similar blights are now being created in the bureaucratic allocation
of frequency spectrum by the Federal Communications Commission and
geostationary orbits for communications satellites.
 
In reality, we are surrounded by "frontiers" in many dimensions.  Few
have the profound implications of a physical frontier such as the
American west or space, but all share in common the attribute that
proprietary access to them is restricted by government so as to
prevent unproductive hoarding.  
 
In the case of technological frontiers, this problem is solved by
limiting the patent claims to 17 years.  An inventor can sit on an
invention doing nothing with it for up to 17 years, but beyond that
time, its use cannot be inhibited by the inventor.  In practice, most
inventors are so eager to see their invention brought into widespread
use, they endanger their own claim.  The patented technique is unique
among frontier claims in that it's use is not inherently limited --
techniques are not "resources", and in that it is truly the creation
of the inventor -- not an emergent phenomenon of civilization and
nature.
 
But in other areas, such as radio frequency and orbital slots, the
analogy with frontier "land" is almost perfect.
 
The NAT, unlike George's land tax, makes it possible for the
government to open up all frontiers to private claim and development. 
Claimants must simply define and register the nature of the property
rights that they wish to claim so that others can avoid overlapping
claims or negotiate easements.  
 
Naturally, there are many such abstract property rights which are now
in use by people, although unclaimed.  The principle of first use,
like first to invent in patent law, should be the criteria for
priority on a claim.  "Use" should include not only direct physical
utilization, but declaration of intent to use the property right via
claim.
 
NAT liability begins with the date that the claim is protected under
law.
 
A CRITIQUE OF COMMUNISM
 
While, unlike Henry George, communists recognized the contribution of
all common assets, they provided no clear and verifiable measure of
this contribution.  They could not define to what extent civilization
had achieved an automated scientific optimum, and, therefore, to what
extent economic production was attributable not to the qualities of
individuals, but to the qualities of civilization.  It is the lack of
such a measure and corresponding limits on the role of government,
that has made communist theory so destructive.1
 
Fortunately, we have evolved just such a measure in our own society. 
This measure is the ratio of the interest rate on the government debt
to the overall economic growth rate in the economy -- the degree to
which a typical asset's value, as calculated in the net present value
formula, arises from the existence of nature and civilization. 
Government debt instruments "automatically" produce more wealth for
their owners.  They are financially certain.  The interest rate on
these instruments describe the degree to which capital enjoys a
welfare safety-net that reduces the incentive for productive
investment.  It, therefore, approximates the degree to which it is
appropriate and practical for government to collect society's wealth
for the maintenance of common assets.
 
When the proceeds of society's productive capacity are just enough to
pay out at a rate equal to government debt instruments, we confront
capitalism's dilemma in which the only sustainable source of income is
ownership of the means of production and our only choices appear to be
economic depression or communism.  This is the first indication that
the large deficits of supply-side economics must inevitably lead to an
a promotion of centralized management -- whether in government or
corporate bureaucracies.
 
A corollary of communism is that the common knowledge, that makes
private ownership of resulting wealth immoral, make central planning
the most efficient way to allocate resources.  Just as a wise and
benevolent dictatorship is the best form of government, so central
economic planning, given adequate knowledge, is the best way to
allocate assets.  Central planning efficiently exploits economies of
scale without wasteful duplication of facilities and competition
between different ideas.  Of course, central planning assumes that the
central planners know what consumers want in the absence of any
demand-side market information.
 
Indeed, this is virtually identical to the failure of supply-side
theorists such as George Gilder, who claim that centralized wealth not
only can make good decisions about what people want without purchasing
power necessarily being placed in the hands of the consumer, but will
go ahead and invest in such an environment.  In Gilder's supply-side
manifesto "Wealth and Poverty" supply-side economics is founded on
Say's Law which states that supply creates demand.
 
Both communists and supply-side economists distrust the consumer's
wisdom to make wise choices in the marketplace -- preferring the
conservative wisdom of centralized power to make such decisions and
trusting their altruistic instincts.  Both prefer centralized
authority over consumer sovereignty.  Neither supply-side nor
communist theory accept the democratic dynamics of a consumer market.
 
Ironically, supply-side policies seem to amplify the errors of
communism in two ways:  1) By requiring consumers to go into debt for
their basic necessities, supply-side economics imposes negative wealth
on consumers so that, at some point, not only may they not obtain the
bare necessities of life, but they must also provide what they do not
have to those who are already own everything.  The material rights of
communism prevent this ultra-pathological situation from arising.  2)
Deficit spending for government contracts awarded to large
corporations typically goes into advanced technology projects, as
opposed to mature-technology infrastructure projects.  With mature
technology, the management is much more "scientific" than it is with
technology development, and therefore more compatible with communism. 
For examples, it is obvious that a mile of train track built across a
given kind of terrain will cost no more than a certain amount of
money.  When building a new space vehicle, or thermonuclear fusion
furnace, however, there is no way for central managers or politicians
to determine whether initial bids and/or cost overruns are reasonable
given the difficulty of the project, or whether those executing the
project are simply dishonest and/or incompetent.
 
FROM SLAVERY TO FREEDOM
 
Clearly, the right of an individual to go about the business of
attempting to acquire the necessities of life, unmolested by
government taxation, should be a cornerstone of any tax system.  In
terms of "net assets", we all owe our own nature a "debt" which takes
the form of servicing these basic needs of life.  Quantifying these
needs so they can be subtracted from one's asset base is a central
issue in constructing a fair tax system.  However, we musnt open the
flood-gates on special exeptions and provisions for liabilities which
will discount one's net asset holdings.
 
There are property rights that deserve special treatment in our laws
and markets.  If we are to avoid a political free-for-all in seeking
exemptions from normal tax and regulatory burdens, there must be basic
principles that define which property rights are and are not special.
 
A starting point is the foundation of modern democracy.  The
cornerstones of this foundation are the principles by which democracy
replaced systems such as slavery and feudalism in the Old World.  
 
First among these principles is that people are not to be treated as
property.2
 
Since they are not property, investments in their health, safety and
education are not recoverable as profits by investors in the free
market.  This difficulty in recovering human investments, resulting
directly from abandonment of slavery, is a "market failure" which must
be addressed by non-market institutions such as the family, religion
and government.  In a sense, the abandonment of slavery was a first
step away from the primacy of property since it undermined one's right
to own one of the most valuable assets conceivable:  Human beings.  
 
Public investment in the health and education of people also happens
to be one of the highest-return and most obvious ways that society can
increase its overall wealth.  Although the best means of educating and
maintaining health may not be so obvious, market synthesis is feasible
as a means of optimization.  An example of this is the proposal for
education vouchers and school choice, although the value of such
vouchers should, as a moral matter, be adjusted by a bidding system to
fit individual student needs.  Similar market syntheses can be
proposed for national health insurance and many other government
functions.
 
Failures of the market, such as the difficulty of collecting tolls on
roads and other infrastructure, have been used to justify government
intervention, but they are not nearly so fundamental as the
abandonment of slavery.  For example, systems are now available which
can automatically identify vehicles traveling at full speed, and bill
for the use of roads.  This means the state can now sell its road
systems to private interests and leave optimal investment decisions in
road infrastructure to the market, assuming market-driven means of
allocating rights-of-way are established.
 
Although formally abolished, degraded forms of slavery continued in
feudal times.  After capital became a central organizing principle,
debtors prisons were abolished as part of the move away from
feudalism, thus the power to enslave via legal contract was virtually
eliminated.  
 
The institution of bankruptcy protection against creditors was a final
rejection of slavery and feudalism.  Bankruptcy protection allows one
to maintain ownership of one's residence and the tools of one's trade
despite the claims of creditors.  Not only is one's own person exempt
from market confiscation but one's vital possessions are protected as
well.  
 
Elimination of debtors' prisons and the institution of bankruptcy
protection of limited personal assets were the final steps away from
slavery and feudalism.  These steps toward freedom caused additional
failures in the capital markets.  These capital market failures
provide the basis for many government policies including progressivity
in taxation and the promotion of home ownership and small businesses.3
 
During the Great Depression of the 1930's, two additional
interventions were established to protect the immediate assets of
individuals:  
 
1) Securities and Exchange Commission regulations to protect average
individuals against losses in risky investments, and
 
2) Deposit insurance for banks and savings and loans.
 
SEC regulations have required compensating programs in an attempt to
deal with the capital market failures created by these regulations.  
 
Deposit insurance, being backed by the federal government, created the
need for highly intrusive federal banking regulations to prevent
monopolistic abuses -- regulation which ended in the early 1980's. 
Government support of deposit insurance continued, however.  This
imbalance of authority of responsibility resulted in the banking
abuses and failures of the late 1980's.  
 
Significantly, all of the government interventions which protect the
immediate assets of individuals have about the same cut-off point. 
SEC regulations define "qualified investors" (those qualified to make
high risk investments) as those who have net assets on the order of
$100,000.  Deposit insurance for individual savers cuts off at
$100,000.  Bankruptcy protection for one's residence plus the tools of
one's trade is typical at around the same level.
 
The unifying principle behind these exemptions and regulations is the
protection of one's control over one's own person and vital
possessions.  The abandonment of slavery with the ancillary
abandonment of debtor's prisons plus the protection of home and tools,
are at the foundation of our free society.
 
A CRITIQUE OF HENRY GEORGE
 
In the 1800's Henry George advocated a "single tax" based on
unimproved land value.  His rationale for this was that unimproved
land was the only heritage in common to all and therefore not
attributable to the merit of any person.  This was a reasonable
approximation of the contribution of "common assets" to wealth
generating activity during an era in which most economic growth was