8 ms·

Over time I have become more and more skeptical of Harberger taxes, which I first encountered somewhere in the works of Heinlein. The idea is that you are taxe

Over time I have become more and more skeptical of Harberger taxes, which I first encountered somewhere in the works of Heinlein. The idea is that you are taxed based on your own estimate of the value of a thing, with the estimate being public and binding as a sale price. This sounds incredibly simple, with a natural mechanism of enforcement; if you undervalue a thing to pay lower taxes then you risk losing it at that price. But I don't think this would work in reality. Pricing things is super hard. In a very liquid market it is difficult but doable, in an illiquid market (of one non-fungible asset) it is practically impossible. At what cadence do you update the estimate? How long is it binding for? If the value suddenly changes, how long a grace period do you have before you have to update the price? You can try to patch this by saying that you have a right of first refusal -- that if someone offers to buy the asset at the price then you can accept their valuation as the new estimate of the price, and pay taxes going forward on the new value. But then this defeats the point of the process because effectively the valuation is non-binding. So you have to put in all sorts of structures to prevent abuse -- maybe levy fines for past underpayment when the pricing is adjusted, or limit the number of re-pricings per time period. And it incentivizes nuisance bidders, because owners will defend their property. So you have to put in restrictions like forcing escrow before the sale, or limiting bidding by a single entity. Not to mention the difficulty in maintaining this registry of ownership of these assets, along with how to deal with more complicated deals about the rights involved -- film rights vs. tv rights vs. print rights, rights to individual characters, temporary licenses, etc., and all of that needs to be mechanized to allow a certain fixed list of the types of rights that can be granted, which right now is as extensive as a contract can contain -- if Sherlock Holmes were still in copyright, what if I just wanted to license Watson or make a film about Moriarty? This is all just hopeless technocratic pie-in-the-sky dreaming.

nightski 2y ago
Another problem in my mind is most creators could not afford the taxes for a high enough valuation (early on at least), but investment groups like blackrock could buy up all the copyrights/patents on the cheap. It also does not prevent the Disney scenario when a copyright is absurdly profitable. They could pay the tax indefinitely.
- Rebelgecko 2y ago
  Plus valuations change over time. In 1997, a valuation of $5m for the first Harry Potter book would've seemed excessive and the author would've probably had trouble paying taxes on it. But even with that valuation, someone could've made billions by snatching it away once Pottermania started (I suppose you could let authors update value on a daily basis but that seems like an insane amount of overhead)
- onlyrealcuzzo 2y ago
  > Another problem in my mind is most creators could not afford the taxes for a high enough valuation If you own 80% of something worth $1B - you have $800M. If you can't sell $2M at your preferred price to pay your taxes, then it's not worth $1B, and you wouldn't have to pay that much tax anyway.
  - RHSeeger 2y ago
    > If you can't sell $2M at your preferred price to pay your taxes But the whole point is that you don't _want_ to sell it. And it's entirely possible to own something that is work more than 20x (given a 5% tax rate) than you currently have in accessible cash. For example, assume you write a story and MegaCorp decides they want to make a movie of it. Right now, they need to pay you to license it. With the Harberger tax scheme, they can force you to sell it to them; because you don't currently have the money to pay taxes on what it's worth to them.
    - lavelganzu 2y ago
      Banks exist. Get a loan.
- salynchnew 2y ago
  This really assumes that money is more important that creative works (or art, heaven forbid) and that less well-off creators should only exist to serve the market. If someone just wants to create something they like, and then own what they created, a big corp or rich jerk could easily bankrupt them through the tax/force them to sell it off. Some things don't need to exist in the context of a market and markets are often less efficient than folks seem to assume.
jaggederest 2y ago
There's an even simpler reason to be skeptical: They're complicated, and people don't understand complicated things, so they'll never happen. Most people don't even correctly understand how progressive taxation works, so anything more complicated than that is dead on arrival.
- andrewla 2y ago
  I think the appeal is that it sounds simple -- you say "I bought my house for $1M, and I don't want to move, so I set the value at $2M, so I have to spend $20,000/yr to keep it, or someone can give me $2M and take the house."
  - jaggederest 2y ago
    I think that drastically underestimates the (american, at least) knee jerk opposition to taxes, discomfort with novelty, and fear of having to move. Why would anyone go from a place where they pay a flat percentage of the assessed value to this new framework?
    - maxerickson 2y ago
      For the love of market efficiency!
    - mapt 2y ago
      Ask what this looks like a solution to. Scenario: Your local town assessor hates $ethnic_minority and starts assessing everything in $minority_neighborhood at 5x its former value so that they get taxed to death. Scenario: Your local town assessor hates rich people and starts assessing everything in $wealthy_neighborhood at 5x its former value so that they get taxed to death. Scenario: Libertarian demagogue mayor decides to eliminate income and sale taxes, and this is his proposal to fund what few public services will remain (at a very low rate). It works, but having virtually no public services remaining has predictable effects and gets him thrown out of office. Rather than rebuild the old system (and start an interminable fight over the specifics in the legislature) the decision is made by the next administration to simply adjust the rate on the new one upwards by a thousand percent. I'm not saying these are credible scenarios, but treat this like a novel where you've written the last chapter; What is the most plausible way that a polity got from here to there? It's a more circumstantial way of thinking - "How might this occur?" than planning hypotheticals, which work more like "How will I achieve this next year in our current universe using my own actions".
stonemetal12 2y ago
>if you undervalue a thing to pay lower taxes then you risk losing it at that price. This sounds incredibly simple... That doesn't sound so simple to me, everything has to be for sale all the time and\or you over pay on your taxes. Value your vehicle at market rate to pay the "right" taxes, anybody in the market for a vehicle can come buy yours at $1 over market rate if they want to. (It costs 2$ to drive to the closest one being sold at market rate, so it makes economic sense.) The only way to even partially defend yourself is to value your property way over market rate and pay taxes higher than the market value would suggest. Basically you have to value your stuff at market rate plus how much I would be annoyed to loose said item. Piss off a billionaire? Guess who is never going to live indoors again.
- bombcar 2y ago
  You also have the silly situation where everything I own is worth more to me than it is worth - otherwise I'd have not bought it. And even if my car is worth $5k, not having to sell it and buy another one (even if I can find it) is worth a premium. It's likely that something like Harberger taxes could work in certain situations, but not normal people ones.
  - khafra 2y ago
    This is actually the solution, not the problem. You seem to be assuming that the "correct" amount of tax to pay is the amount which is based on the market value of your asset. But the correct amount of tax is actually the amount which is based on the asset's value, to you. This keeps Blackrock from swooping in and buying up everything you own, since it's only worth market value to them. It also doesn't make the tax onerous; a revenue-neutral switch from our current taxation scheme to harberger taxes would be revenue-neutral, whether it was based on market value or personal value.
    - actionfromafar 2y ago
      Blackrock would definitely never swoop up a whole class of assets and then something to inflate the prices. /s
danaris 2y ago
The most glaring problem with taxes of this form in the system we have today is that there is no way to price it that does not either price regular people out of the system or allow all regular people's assets that fall under this scheme to be purchased for (relative) peanuts by the superwealthy and megacorporations. That is to say, the prices you'd have to set to prevent very wealthy bad actors from just buying up everything and holding everyone hostage to it are so high that regular people would never be able to sustain them. And once they have obtained all the Stuff, even if they can't change the rules to make it so they no longer have to pay, they only have to keep the Harberger prices high for a fairly short time for the rents they charge us to bleed us dry enough that we have no chance of buying any of it back.
- khafra 2y ago
  > That is to say, the prices you'd have to set to prevent very wealthy bad actors from just buying up everything and holding everyone hostage to it are so high that regular people would never be able to sustain them. I think you're saying that, under a harberger taxation scheme, if your asset's (let's say it's a house) fair market value is $500k, you wouldn't be able to afford the taxes if you declared its value at $750k to make sure you wouldn't have to move unless someone (e.g. Blackrock) paid you enough to deal with that hassle. But there's no reason to expect the prices on an extra 50% above market value to be ruinous, unless the harberger tax is set to near the full rental price of the asset, e.g. harberger-enabled Georgism. And if the harberger tax is set to the full rental price of the asset, then Blackrock cannot make tons of money by buying the asset and renting it back to you; they will have all the rental income taxed away. It would lose them money every day they held onto it, and commonly-proposed harberger amendments like requiring the buyer to pay on their initially declared value for at least a year would quickly turn their ledgers into Redrock.
khafra 2y ago
If you read about Harberger taxes in Heinlein, you should know that there's been a lot of work done since then; notably by Posner and Weyl in 2018, but also by Robin Hanson: https://www.overcomingbias.com/p/for-stability-rentshtml https://www.overcomingbias.com/p/for-stability-rentshtml > Pricing things is super hard Not applicable to copyright, but perhaps something analogous would arise if there were a market for it: Real estate agents have to estimate the value of a home to the market all the time, and have some simple heuristics with a fairly reliable error rate. Use those, plus an extra percentage for whatever the additional value is to you of sentimental attachment, of not dealing with the hassle of moving, etc. You could also buy "harberger insurance" which would cover the additional cost of rebuying your asset, in exchange for premiums that depended on how much the insurer thought you were underpricing your asset.
- dsr_ 2y ago
  Real estate has facts and opinions: the size of the land and where it is; how much the land nearby sold for; last price paid for this land; condition of the buildings. Copyright only has opinions and history, and for the vast majority of IP, the history is "nobody has ever paid for this". But the real killer for this proposal is that it creates a new mechanism for rich people or corporations to take work away from others. If the market is not serving the needs of the people at large, the people at large will and should alter or abolish the market.
  - khafra 2y ago
    > the real killer for this proposal is that it creates a new mechanism for rich people or corporations to take work away from others. There's two ways you could mean this: 1. A rich guy really likes your IP, for personal reasons; he's willing to pay a bunch of money for the rights to it. 2. A rich guy making business decisions thinks he can profit at someone's expense from owning large swathes of IP; he swoops in and buys it all up, to the detriment of the public. Case #1 could absolutely happen under the harberger IP scheme. If Elon Musk decides he likes your cartoon, he can buy it at your declared price, and say it's his, and everyone will say "yes, Elon, that is yours." But Elon Musk already does that every day; he's constantly cropping the watermark off some cartoon or other and posting it on X, and everyone says "yes, Elon, that is yours." The only difference under the harberger IP scheme is that the artist actually gets his declared value for the cartoon from Elon. Case #2 is what the harberger IP scheme is designed to facilitate, but it's not taking work away from others--it's buying the products that others have created, at the price at which the owner is willing to sell. This is what professional artists want. There's nothing here that would allow rich people or corporations to profit in some way that normal people cannot.
jdietrich 2y ago
It's a slightly silly example, but Nordic Folkracing has successfully used a similar rule for decades. It's supposed to be a cheap form of motor racing, but that's naturally difficult to enforce; the enforcement mechanism is that anyone has the right to buy any competitor's car for a fixed price. The equilibrium is that most competitors build the cheapest car possible to avoid the risk of being forced to sell their car, which is precisely as intended. In the case of a Harberger copyright tax, there's an obvious equilibrium - anyone who seriously values their copyright has a strong incentive to err on the side of caution and pay taxes based on a high valuation, while lots of copyrights with negligible value are voluntarily abandoned due to the costs of both the tax and the administrative burden. The difficult cases in the middle would primarily affect speculators with large portfolios of copyrights of questionable value, which is an entirely desirable outcome. We could still drive socially desirable outcomes with very low taxation rates, because a very large proportion of copyrighted works have essentially zero commercial value. Creating a streamlined registration, valuation and purchasing platform is entirely within the wit of man. https://en.wikipedia.org/wiki/Folkrace https://en.wikipedia.org/wiki/Folkrace
- vintermann 2y ago
  I'm pretty sure most artists will hate your guts if you force them to admit the real commercial value of their work.
travisb 2y ago
Harberger taxes seem like a spherical cow solution. It works in abstract economic theory, but encounters serious problems when you introduce pragmatic complications like cash-flow, malicious actors, non-rational actors, asymmetric value, transaction costs, lumpy probability distributions, and other things. Fixes to those various problems can be bolted on, but the end result loses much of the theoretical advantages which made Harberger taxes appealing in the first place.

nightski 2y ago

Another problem in my mind is most creators could not afford the taxes for a high enough valuation (early on at least), but investment groups like blackrock could buy up all the copyrights/patents on the cheap. It also does not prevent the Disney scenario when a copyright is absurdly profitable. They could pay the tax indefinitely.

Rebelgecko 2y ago
Plus valuations change over time. In 1997, a valuation of $5m for the first Harry Potter book would've seemed excessive and the author would've probably had trouble paying taxes on it. But even with that valuation, someone could've made billions by snatching it away once Pottermania started (I suppose you could let authors update value on a daily basis but that seems like an insane amount of overhead)
onlyrealcuzzo 2y ago
> Another problem in my mind is most creators could not afford the taxes for a high enough valuation If you own 80% of something worth $1B - you have $800M. If you can't sell $2M at your preferred price to pay your taxes, then it's not worth $1B, and you wouldn't have to pay that much tax anyway.
- RHSeeger 2y ago
  > If you can't sell $2M at your preferred price to pay your taxes But the whole point is that you don't _want_ to sell it. And it's entirely possible to own something that is work more than 20x (given a 5% tax rate) than you currently have in accessible cash. For example, assume you write a story and MegaCorp decides they want to make a movie of it. Right now, they need to pay you to license it. With the Harberger tax scheme, they can force you to sell it to them; because you don't currently have the money to pay taxes on what it's worth to them.
  - lavelganzu 2y ago
    Banks exist. Get a loan.
salynchnew 2y ago
This really assumes that money is more important that creative works (or art, heaven forbid) and that less well-off creators should only exist to serve the market. If someone just wants to create something they like, and then own what they created, a big corp or rich jerk could easily bankrupt them through the tax/force them to sell it off. Some things don't need to exist in the context of a market and markets are often less efficient than folks seem to assume.

jaggederest 2y ago

There's an even simpler reason to be skeptical: They're complicated, and people don't understand complicated things, so they'll never happen. Most people don't even correctly understand how progressive taxation works, so anything more complicated than that is dead on arrival.

andrewla 2y ago
I think the appeal is that it sounds simple -- you say "I bought my house for $1M, and I don't want to move, so I set the value at $2M, so I have to spend $20,000/yr to keep it, or someone can give me $2M and take the house."
- jaggederest 2y ago
  I think that drastically underestimates the (american, at least) knee jerk opposition to taxes, discomfort with novelty, and fear of having to move. Why would anyone go from a place where they pay a flat percentage of the assessed value to this new framework?
  - maxerickson 2y ago
    For the love of market efficiency!
  - mapt 2y ago
    Ask what this looks like a solution to. Scenario: Your local town assessor hates $ethnic_minority and starts assessing everything in $minority_neighborhood at 5x its former value so that they get taxed to death. Scenario: Your local town assessor hates rich people and starts assessing everything in $wealthy_neighborhood at 5x its former value so that they get taxed to death. Scenario: Libertarian demagogue mayor decides to eliminate income and sale taxes, and this is his proposal to fund what few public services will remain (at a very low rate). It works, but having virtually no public services remaining has predictable effects and gets him thrown out of office. Rather than rebuild the old system (and start an interminable fight over the specifics in the legislature) the decision is made by the next administration to simply adjust the rate on the new one upwards by a thousand percent. I'm not saying these are credible scenarios, but treat this like a novel where you've written the last chapter; What is the most plausible way that a polity got from here to there? It's a more circumstantial way of thinking - "How might this occur?" than planning hypotheticals, which work more like "How will I achieve this next year in our current universe using my own actions".

stonemetal12 2y ago

>if you undervalue a thing to pay lower taxes then you risk losing it at that price. This sounds incredibly simple... That doesn't sound so simple to me, everything has to be for sale all the time and\or you over pay on your taxes. Value your vehicle at market rate to pay the "right" taxes, anybody in the market for a vehicle can come buy yours at $1 over market rate if they want to. (It costs 2$ to drive to the closest one being sold at market rate, so it makes economic sense.) The only way to even partially defend yourself is to value your property way over market rate and pay taxes higher than the market value would suggest. Basically you have to value your stuff at market rate plus how much I would be annoyed to loose said item. Piss off a billionaire? Guess who is never going to live indoors again.

bombcar 2y ago
You also have the silly situation where everything I own is worth more to me than it is worth - otherwise I'd have not bought it. And even if my car is worth $5k, not having to sell it and buy another one (even if I can find it) is worth a premium. It's likely that something like Harberger taxes could work in certain situations, but not normal people ones.
- khafra 2y ago
  This is actually the solution, not the problem. You seem to be assuming that the "correct" amount of tax to pay is the amount which is based on the market value of your asset. But the correct amount of tax is actually the amount which is based on the asset's value, to you. This keeps Blackrock from swooping in and buying up everything you own, since it's only worth market value to them. It also doesn't make the tax onerous; a revenue-neutral switch from our current taxation scheme to harberger taxes would be revenue-neutral, whether it was based on market value or personal value.
  - actionfromafar 2y ago
    Blackrock would definitely never swoop up a whole class of assets and then something to inflate the prices. /s

danaris 2y ago

The most glaring problem with taxes of this form in the system we have today is that there is no way to price it that does not either price regular people out of the system or allow all regular people's assets that fall under this scheme to be purchased for (relative) peanuts by the superwealthy and megacorporations. That is to say, the prices you'd have to set to prevent very wealthy bad actors from just buying up everything and holding everyone hostage to it are so high that regular people would never be able to sustain them. And once they have obtained all the Stuff, even if they can't change the rules to make it so they no longer have to pay, they only have to keep the Harberger prices high for a fairly short time for the rents they charge us to bleed us dry enough that we have no chance of buying any of it back.

khafra 2y ago
> That is to say, the prices you'd have to set to prevent very wealthy bad actors from just buying up everything and holding everyone hostage to it are so high that regular people would never be able to sustain them. I think you're saying that, under a harberger taxation scheme, if your asset's (let's say it's a house) fair market value is $500k, you wouldn't be able to afford the taxes if you declared its value at $750k to make sure you wouldn't have to move unless someone (e.g. Blackrock) paid you enough to deal with that hassle. But there's no reason to expect the prices on an extra 50% above market value to be ruinous, unless the harberger tax is set to near the full rental price of the asset, e.g. harberger-enabled Georgism. And if the harberger tax is set to the full rental price of the asset, then Blackrock cannot make tons of money by buying the asset and renting it back to you; they will have all the rental income taxed away. It would lose them money every day they held onto it, and commonly-proposed harberger amendments like requiring the buyer to pay on their initially declared value for at least a year would quickly turn their ledgers into Redrock.

khafra 2y ago

If you read about Harberger taxes in Heinlein, you should know that there's been a lot of work done since then; notably by Posner and Weyl in 2018, but also by Robin Hanson: https://www.overcomingbias.com/p/for-stability-rentshtml https://www.overcomingbias.com/p/for-stability-rentshtml > Pricing things is super hard Not applicable to copyright, but perhaps something analogous would arise if there were a market for it: Real estate agents have to estimate the value of a home to the market all the time, and have some simple heuristics with a fairly reliable error rate. Use those, plus an extra percentage for whatever the additional value is to you of sentimental attachment, of not dealing with the hassle of moving, etc. You could also buy "harberger insurance" which would cover the additional cost of rebuying your asset, in exchange for premiums that depended on how much the insurer thought you were underpricing your asset.

dsr_ 2y ago
Real estate has facts and opinions: the size of the land and where it is; how much the land nearby sold for; last price paid for this land; condition of the buildings. Copyright only has opinions and history, and for the vast majority of IP, the history is "nobody has ever paid for this". But the real killer for this proposal is that it creates a new mechanism for rich people or corporations to take work away from others. If the market is not serving the needs of the people at large, the people at large will and should alter or abolish the market.
- khafra 2y ago
  > the real killer for this proposal is that it creates a new mechanism for rich people or corporations to take work away from others. There's two ways you could mean this: 1. A rich guy really likes your IP, for personal reasons; he's willing to pay a bunch of money for the rights to it. 2. A rich guy making business decisions thinks he can profit at someone's expense from owning large swathes of IP; he swoops in and buys it all up, to the detriment of the public. Case #1 could absolutely happen under the harberger IP scheme. If Elon Musk decides he likes your cartoon, he can buy it at your declared price, and say it's his, and everyone will say "yes, Elon, that is yours." But Elon Musk already does that every day; he's constantly cropping the watermark off some cartoon or other and posting it on X, and everyone says "yes, Elon, that is yours." The only difference under the harberger IP scheme is that the artist actually gets his declared value for the cartoon from Elon. Case #2 is what the harberger IP scheme is designed to facilitate, but it's not taking work away from others--it's buying the products that others have created, at the price at which the owner is willing to sell. This is what professional artists want. There's nothing here that would allow rich people or corporations to profit in some way that normal people cannot.

jdietrich 2y ago

It's a slightly silly example, but Nordic Folkracing has successfully used a similar rule for decades. It's supposed to be a cheap form of motor racing, but that's naturally difficult to enforce; the enforcement mechanism is that anyone has the right to buy any competitor's car for a fixed price. The equilibrium is that most competitors build the cheapest car possible to avoid the risk of being forced to sell their car, which is precisely as intended. In the case of a Harberger copyright tax, there's an obvious equilibrium - anyone who seriously values their copyright has a strong incentive to err on the side of caution and pay taxes based on a high valuation, while lots of copyrights with negligible value are voluntarily abandoned due to the costs of both the tax and the administrative burden. The difficult cases in the middle would primarily affect speculators with large portfolios of copyrights of questionable value, which is an entirely desirable outcome. We could still drive socially desirable outcomes with very low taxation rates, because a very large proportion of copyrighted works have essentially zero commercial value. Creating a streamlined registration, valuation and purchasing platform is entirely within the wit of man. https://en.wikipedia.org/wiki/Folkrace https://en.wikipedia.org/wiki/Folkrace

vintermann 2y ago
I'm pretty sure most artists will hate your guts if you force them to admit the real commercial value of their work.

travisb 2y ago

Harberger taxes seem like a spherical cow solution. It works in abstract economic theory, but encounters serious problems when you introduce pragmatic complications like cash-flow, malicious actors, non-rational actors, asymmetric value, transaction costs, lumpy probability distributions, and other things. Fixes to those various problems can be bolted on, but the end result loses much of the theoretical advantages which made Harberger taxes appealing in the first place.