Local Assets, Local Taxes, Local Money
In this post I will discuss local taxes. Taxation is an expression of political accounting relationships.
The definition of tax highlights its compulsory nature. Polities levy taxes to enforce participation in established political programs. These programs are directed through asset issuance, while taxes serve to enforce asset value and defend or control price levels. Taxes can also directly express political regulatory programs or social objectives.
In the United States today, and most other countries, financial operations are conducted under a single currency standard. Because of this, local polities, as well as businesses and corporations, issue assets that are immediately exchanged to acquire the standardized currency.
Local governments issue bonds, individuals and businesses sign loan contracts, and corporations issue stock equity. Each process is an example of an entity issuing an asset to acquire the standardized currency for spending.
The primary benefit of a single currency standard, is that it serves as a universal unit of account. We can use a single unit to denominate prices. Using standardized units simplifies the process of setting and comparing prices, and performing other accounting calculations.
Prices can be denominated in terms of a standard unit, without actually using that asset for exchange. Conventionally, exchanges involve two parties giving each other assets of comparable value. This can involve any set of assets agreed on by both parties. Prices of the assets, denominated in the standard unit of account, can be used to compare the value each party contributes to the exchange.
This difference between using the standardized currency for exchange, and merely using a standard unit of account for denominating prices, is important. If the unit of account is the only currency accepted in exchange, it makes transacting parties highly dependent on the availability of that asset to conduct commerce.
On the other hand, if the unit of account is only used for setting prices, and not as an exclusive currency, its availability does not inherently inhibit commerce.
In either case, the unit of account is important, because it is used to denominate prices. If it fluctuates in value, it can invalidate prices, or give one party or another an unanticipated advantage in contractual relationships. If this advantage is extreme, it may force renegotiation of the contract or relationship.
Finally, the unit of account is also important because it is generally automatically accepted as a valid form of payment in exchanges. This means that those who issue or accumulate an asset that serves as the unit of account can generally buy anything available for sale, which has certain economic and social implications.
The Non-Asset Unit of Account
Most units of account are also specific assets, such as gold, dollars, pounds, euros, or bitcoin.
During this writing, I realized that a unit of account that doesn’t have any specific asset representation would be a useful construction.
A political or social entity could maintain this unit, by denominating and/or tracking relative prices of noteworthy assets, and describing the value of each of these assets in terms of a single standardized stable unit. This unit could be used to set prices for commerce or the terms of financial contracts.
Because there would be no asset to defend, the entity defining this unit would not need to engage in any buying or selling programs.
I imagine that similar constructions exist in the financial world, but it could be made to be something that is commonly or universally accepted in commerce. Certainly there would be important political issues to be addressed in managing such a unit, without conflicting interests, but I think these issues are manageable with the proper political and social structure and relationships.
Local governments tend to exercise authority over resources like land, utilities, contracts and permits, and local commerce etc. In certain cases, they may also have significant influence over trade or larger political issues.
Taxes should be seen as a means to clear spending liabilities, as well as a channel for influencing resource management.
A land value tax offers certain benefits in this regard. But a land value tax can compromise the use of land as an investment vehicle. Investment can be important, because it encourages resource owners to interact with a community in positive ways, anticipating long term outcomes.
A land value tax uses the market price of the land to set an amount of tax on that land. In this way, an LVT automatically stabilizes land prices. If the price of the land increases, taxes increase as well.
Proponents of the land value tax suggest it encourages efficient use of land, and reduces urban sprawl and many associated environmental and ecological problems. When compared to property taxes, this is certainly an accurate statement.
However, I see great merit in simple “Land Taxes” over a “Land Value Tax”. Land taxes are a levied on land at specific rates, perhaps based on estimated costs to the community of supporting the permitted land use agreed on for that site, and/or square footage. Certain central areas may have higher rates, but the tax rate is not tied directly to market prices of land.
The ecological problems I see with land use, sprawl, and community are equal parts culture and policy. A land tax over a property tax would do a lot to address this from the policy side, which would allow cultural issues to be addressed simultaneously. A land value tax, on the other hand, is too extreme a policy solution, in my opinion, and has the potential to have negative effects on land investment and development.
Changing Financial Rules to Recognize the Great Importance of Local Resources and Community Wealth Management
Local resources are important for the financial outcomes of communities. Originally, communities were self sufficient entities. Through historical changes and the growth of human population, we have become more interconnected socially and more mutually dependent economically.
But I still believe communities can be more self reliant, both in terms of basic essentials, like food, water, and power, and in terms of financial and political relationships.
Because of this, I favor changing banking and financial regulations to allow local assets such as municipal or state government bonds, to be used as a part of the reserves of local banks and credit unions. Going along with this, measures could be taken to facilitate acceptance of local assets, especially for resources that are primarily subject to local authority.
For example, you might use a local asset to pay your rent, but you would still use the national currency when you went shopping.
There are many small changes we could make that would dramatically change political, financial, and social relationships and improve outcomes for communities.