Adam Smith’s AGR (aka LVT) would prosper Scotland

From the earliest times humans have produced a surplus by working together. All producers of that surplus are entitled to a share.

That surplus ought to be collected in Scotland to properly fund public services.

In Scotland today only site owners get a share. The mechanism that would redistribute the socially produced surplus to address inequality is Adam Smith’s AGR (Annual Ground Rent). Replacing taxes on wages and trade with AGR (AKA Land Value Tax) would not only share that surplus fairly – tackling social dislocation – but also boost prosperity, reversing the age-old flow of people and resources out of our country.

Devolved tax powers allow Holyrood to cancel between £12bn and £24bn of annual Scottish Deadweight Losses immediately. That’s one third of the total avoidable damage automatically inflicted on the Scottish economy each year by Westminster taxes on wages and trade.

Our new report, Scotland’s Path to Prosperity (submitted to the Scottish Land Commission Feb 2018) is a fully costed and highly detailed proposal demonstrating how Holyrood should use devolved powers to replace a proportion of Income Tax with AGR/LVT. Adopting our proposals would boost the Scottish economy by over 9% a year without raising any extra revenue!

Holyrood should undermine the central pillar on which Westminster is built. And confront the reason why the UK Idea, as currently packaged, could never work in Scotland’s interests: the menace of Rent-seeking.

Substantially replacing Income Tax (now devolved) will cause people, resources and enterprises to start flowing back into Scotland for the first time in centuries. The replacement revenue will come from a reformed locally-collected Annual Ground Rent as originally prescribed by Adam Smith. Such a levy would re-connect outcast citizens and revitalize local governance and democracy. AGR would also replace the other devolved taxes (Council Tax, Non-domestic Rates and LBBT).

By collecting revenue direct from unearned, socially-generated ‘economic rent’ (currently privatized by Acts of the Westminster parliament) vast deadweight losses would be avoided. Income Tax inflicts at least £12 billion a year of Scottish deadweight losses. Some economists argue over £24bn (e.g. Martin Feldstein, Harvard). Income Tax accounts for a third of today’s total annual Scottish losses. £ billions of losses which Holyrood could avoid today. That is £12bn to £24bn of additional wealth and welfare that would be conducted in Scotland each year.
Hollyrood, please start by replacing part or all of Income Tax with locally collected AGR/LVT. It would be a first step in moving to AGR as state revenue to eventually shed all the deadweight losses. Total losses could easily be £72bn, National Insurance and VAT being the principal un-devolved offending mechanisms. Site rent as revenue is the policy which has powered the economies of Hong Kong, Singapore and Taiwan, allowing ultra-low income, sales and profits taxes. You will also be setting in motion forces that will automatically…
• tackle austerity
• boost Scottish growth
• fully fund Scottish public services
• escape annual deficits
• address the housing crisis
• reduce concentrated land holding
• halt premature deaths attributable to poverty (e.g. 17 years lost to men in Drumchapel)
• end social exclusion with its maladaptive coping mechanisms
• provide full employment
• share prosperity
• reverse depopulation
• remove the burden of debt we are currently placing on our children and future generations of Scots
• curb pollution and the reckless use of natural resources
Please listen to the advice of the retained Nobel Prize winning members of your Council of Economic Advisers, Professors Stiglitz and Mirrlees. who consistently advocate such a revenue policy. The alternative is to allow Scotland to remain a Rent-seeking zone. In which case, responsibility for sustaining the problems that characterise such cultures will begin to be shifted away from Westminster on to the shoulders of Holyrood.
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