There is election in Denmark at the time this article is written. It means the same as in all other countries: political parties are outbidding each other with political proposals. One of the hot ones at the moment is a model for taxing financial transactions, proposed by all the parties currently in opposition.

It makes very good sense to put tax on the speculative economy – the one that lives off workfree profits and contribute only minimally to the production of products – instead of taxing the productive economy that do contribute to the economy by producing those values, that are collective referred to as the Gross Domestic Product.

It is self-evident that taxing the GDP means that less revenue will used for reinvestment and consumption. It is therefore logical to move at least some tax burden away from the GDP and onto workfree profits.

The model that is chosen is not the optimal. The tax will be put on financial transactions. It would be better to tax the revenue, from which the speculative economy collects most of its profits, namely the primary source of workfree profits, but to exempt financial transactions. There are transactions that contribute to the availability of risk-taking capital. It would be unwise to burden these.

The optimal model would be to tax capitalization of land values. Such a tax would neither inhibit productive economy nor the availability of risk-taking capital, but only the purely speculative economy consisting only of workfree profits, and in reality is a private tax on the productive economy.

The market value of land is where values created by the joint efforts and investments of society reveal themselves; the values we create by improving the conditions for economic activity as society develops. We all contribute equally to these values; they should therefore not end up in the financial world as workfree profits, but should be accessible to all of us equally. For starters they should be the primary, hopefully in time the only, source of revenue for public expenses.

Let us implement a land value tax gradually over a few decades, ultimately to replace all others forms of taxation.

We should tax the aspects of economy that are best equipped to withstand this tax pressure without distorting the economy. Any kind of income taxation is the dumbest form of taxation. It will inevitably distort economy: Whenever a dollar has been earned by production/work (to sides of the same coin; a pun definitely intended), tax will remove part of that dollar, and therefore less value be left for future investment or consumption. Income tax inhibits productive economy.

Taxing land values does not have the same drawback. Land does not become less necessary for economy activity or less valuable by being taxed. Land is an indispensable cogwheel in any form of economic activity, and it will continue to be so even after a land value tax has been implemented.

The tax on land should be limited; It should attain a level where landowners are unable to obtain workfree profits by owning their land. Land value tax breaking this limit, is no longer land value tax, but a tax on productive economy. This balance must be identified and maintained.

For many more details read this and my book, primarily chapters 4 and 5. In this book this model for taxation is substantiated in much more detail, and there is a model for the details of implementing it.

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