Editor’s note: this is part 2 of a 2 part series on Funding Georgist Justice. See Part 1 here.

Georgist taxation is fundamentally linked to compensating society when individuals privatise common property (things that are not man made). The prime example is land value tax (LVT) being compensation for enclosing land for private use which directly translates to a full citizens’ dividend (CD) which in the classical Georgist sense would be an equal cash payment to all citizens.

Logically other such compensation type taxes will work similarly with the exception of some exceptions such as taxes on pollution being able to fund cleanup operations. However, most modern Georgists (myself included) would like to see public goods and services implemented by the government. Therein lies the issue; if compensation type taxes must be used to compensate all citizens equally, how can public services that benefit some differently be funded? This article will attempt to provide a satisfactory answer to this very question.

Before we begin, let us categorise the areas of government spending and the ways they can be justified. The items that will be discussed generally fall into these four categories:

• Items that can be funded by compensation type taxes because they benefit all citizens equally.

• Items that can be funded by government issued vouchers that can be redeemed for cash when unused.

• Items that are self funded government operated enterprises (funded through fees).

• Locally universal public goods and services that can be funded by local LVT.

These justifications will be explained in detail with examples to illustrate how they work. The scope of these justifications will cover most items of government spending commonly seen in modern day first world economies. Edge cases that don’t apply to any of these will be addressed in brief. The goal of these solutions is to prevent individuals from subsidising things that do not affect them. For example it wouldn’t be right for the government to reduce your citizens’ dividend to fund swimming pools if you are unable to swim.

Items that can be funded by compensation type taxes

As outlined before, compensation type taxes must be used to compensate every citizen equally. Therefore, if the public good or service can achieve the same outcome, then it can be justifiably funded by compensation type taxes. Examples include: defense, currency, political institutions and the administrative costs associated with delivering the CD to citizens. There are surely other areas of government spending that fall into this category, but I will explain the examples I have named in detail.

National defense is enjoyed by all citizens in the same way in peacetime as the purpose of defense spending is to maintain peace. Note that we are working under the assumption that a Georgist state is not interventionist so defense is only a deterrent for foreign acts of aggression.

In the event of war, things change; where citizens near the frontline do not benefit as much as the protections a defence force provides cannot prevent the destruction of warfare completely. Therefore, it is also an imperative for the government to compensate these citizens who suffer from the destruction of war from an economic standpoint. 

Currency is used for all transactions within the jurisdiction of a nation, since all citizens must make transactions it is justifiable that compensation type taxes can be used to fund the production of hard currency and the management of currency as a whole. It could be argued that individuals that make more transactions benefit from currency more, but this distinction is minor at best.

Political institutions govern society and in all democracies citizens are invited if not required to participate. The benefits of these institutions are experienced by all citizens which make funding them with compensation type taxes justifiable.

It could be argued that some individuals or groups benefit more from political institutions than others. Though this is true in the modern day, in a Georgist society, one of the main goals is to eliminate government granted privileges for a fair society. 

Last but not least, the administrative costs of delivering the citizens’ dividend including the institution of tax collection and compensation also benefits everyone. Therefore, even if all other forms of government spending is eliminated, the citizens’ dividend the public will receive will amount to the revenue from the LVT minus the administrative cost delivering it to all citizens.

Items that are funded vouchers

Vouchers are bonds worth a sum of money that can only be redeemed for certain goods and services. This concept can be applied to government goods and services that only affect people who utilize said resources with some modification.

For example, public healthcare only benefits those who use it, if a person never uses the public healthcare system, then it cannot be considered compensation for anything. Vouchers solve this by giving individuals three choices: redeem vouchers for public goods and services; redeem vouchers for cash after a certain time; or keep the vouchers forward. Therefore, only the individuals who use the public goods and services contribute to their funding.

You may observe that this voucher system is really just an alternative way of charging a fee for government goods and services as in a government owned enterprise (explored in the next section). This is true, but the voucher system is still useful for government goods and services that are critical to society but are not regularly used. Examples include: healthcare, education and childcare.

Healthcare is a critical service that is generally used infrequently, where the benefit only falls on the users of public healthcare. For this discussion, healthcare will refer to all healthcare from general practices to medical evacuation to specialists.

The voucher system applied to public healthcare will resemble modern medicare systems with a wider scope, except the funds can be withdrawn as cash after a certain time. The voucher system has two primary benefits: providing individuals insurance from being saddled with sudden expensive ambulance fees or medical fees; and keeping a consistent pool of funds (represented by unused vouchers) for essential services. An alternative to the voucher system may be to have a medicare account where a portion of the CD is deposited and a requirement for a minimum balance on the account as insurance for medical emergencies.

Education, on the other hand, is different. Whereas healthcare and emergencies are rare, education is ubiquitous and oftentimes mandatory. Public schools only primarily benefit the children enrolled in them and their parents (where school doubles as childcare). It can be said that public schools benefit the whole society by keeping kids off the street, reducing youth crime. Nevertheless, it benefits different people in different ways and people can choose to attend private school.

Therefore, education vouchers should be redeemable for private schooling, extracurriculars, public schooling any time and redeemable for cash after some time. Since education only applies to a child, the voucher should be issued as part of the child’s citizens’ dividend. Vouchers should be redeemable for cash after the state required schooling is complete (usually 10th grade). Therefore, a young adult can choose to redeem the vouchers to subsidise their tertiary education or for cash if they want to pursue something else.

Childcare is very similar but different to education; though the outcomes are similar, the primary purpose of childcare is for the benefit of the parents. Vouchers for childcare could be lumped in with education but in my opinion childcare should not be subsidized fully by the CD of the child. A potential voucher scheme may limit parents to paying half (or some other portion) of the cost of childcare with the vouchers belonging to the child. A criticism of this change is that rules add unnecessary administrative costs.

Self funded government operated enterprises

Government enterprises are the most straightforward of these cases, as they rely on the fees of paying customers instead of tax revenue to operate. Almost every private sector enterprise technically can have its government operated counterpart but for practicality only the most important industries have government enterprises running them either in its entirety or in conjunction with private companies.

In both cases government enterprises should be run as non-profit organisations to keep prices as low as possible for consumers. Government enterprises working alongside private businesses can increase competition in the markets that they are in which drives prices down for all consumers. Government enterprises working alone in cases such as rail, streamline such services for the public.

Examples of government working in conjunction with private businesses include:

• Housing
• Mail/courier services
• Banking
• Telecommunication

To comply with the Georgist justice prescribed, government enterprises must not use the society’s land value, which means the startup process must not use revenues from LVT. This means the government must take a loan on itself to initiate the enterprise, then make a return to fund itself and repay the startup costs. To maintain fairness, the central bank should also offer business loans for similar purposes.

As a side note, central banks offering interest free loans is a better way to support businesses and increase competition than subsidies. Additionally, government enterprises under Georgism must not be exempt from LVT unlike most existing examples which are generally exempt from taxation.

This distinction is needed because the government still takes up land as a private business does. Therefore, compensation to society is still required, or else society will not get its fair share of citizens’ dividend. At the end of the day, government enterprises that do not benefit everyone equally must not take away from the land value that belongs to society.

Locally universal public goods and services

Many public goods and services are localised to different government jurisdictions. For example, street lights are ubiquitous on urban roads, but usually do not cover rural roads. These goods and services are usually the responsibility of local governments and are funded by a mix of local taxes and funding from state and federal. This means some taxpayers are paying for services they cannot readily access. Some more examples of these services include: 

• Street lights
• Waste collection
• Infrastructure maintenance
• Some infrastructure (e.g. power plants)

These goods benefit everyone living near them equally, but will not benefit all citizens due to distance. The goal is to prevent people from paying for public goods and services that do not affect them, so locally collected LVT should be used to fund locally universal public goods. To implement this, each level of government should either collect their own LVT or receive a share of the LVT based on the land value of their jurisdiction.

As an example, Australia has currently implemented a system where Land Tax is collected at the state level, and local governments (called councils) charge “council rates” which is a tax calculated based on land values to fund things such as community services, infrastructure and waste collection. 

A common concern with this strict local funding is that poorer jurisdictions may lack the funding that they need. For this we must reconsider what “locally universal” means; for the example of street lights, they are universal (and standardised) for multiple local government jurisdictions.

Therefore, the resources of those local governments can be pooled to fund this public good. Most of these goods and services are similarly shared among neighboring local governments so poorer jurisdictions can be supported.

Miscellaneous and Special cases

Some cases of government spending do not fit well with the categories laid out so far. It is also impossible to go over all the cases of government spending, so I have chosen 5 cases I consider significant unanswered cases:

• Infrastructure
• Disability benefits
• Research
• Disaster relief
• Public parks and beaches

Most would agree building infrastructure is important and government funding is required for some big projects. However, not everyone benefits equally; therefore, infrastructure can be funded by a mix of locally sourced LVT funding (from all the jurisdictions that benefit) and fees such as in the case of toll roads. 

Disability benefits and disaster relief are both similar in the sense that negative outcomes that often are not man made. For disabilities and disasters that are man made, people can be held accountable and compensate for their wrongdoings. For everything else, no one is to blame, which makes it difficult for the people suffering and difficult for others that may be asked to bear the cost.

Apart from charity, I believe it is justifiable that costs that no one has caused must be borne by society just as value that no one has produced must be returned to society (such as land value). Therefore, it becomes justifiable that natural values pay for natural costs/disasters.

Government led research is sometimes necessary for advancing areas of science/technology beneficial to society that are too risky or unprofitable for the private sector to justify doing. So, the role of the government here is to take on the risk and reduce the barrier to entry for less profitable research ventures. Several alternatives can fill this role instead of direct funding from tax revenue which would take away from the compensation citizens are due.

First is by replacing grants with loans, either low or zero interest loans for research. This lowers the barrier of entry as the venture does not need to be as profitable for the researcher but still has great diffuse benefits to society. Government research organizations can also do the same to take on the risk.

Another way of mitigating risk is to use government operated insurance schemes to reduce the risk of research ventures. At the end of the day, research like all investments carries the risk of making a loss. These losses can be absorbed by the private sector where loans are paid using other sources of private revenue or sources revenue generated by other government operated enterprises. Therefore, whatever happens, the cost of both successful and failed research is not borne by society.

Public parks and beaches (public recreation spaces) are important for the wellbeing of society but they need funding to build and maintain and staff in the case of beaches. But unlike the “locally universal goods” they are not used by everyone and thus cannot benefit everyone equally. 

It would also be unreasonable for most public recreation spaces to be funded by vouchers or fees (except in cases such as tennis courts, pools etc). Local governments can use the revenues gained from the other enterprises they operate to fund public recreation spaces. Where applicable, local governments can also rent out spaces for businesses to generate revenue. For example, a popular oval and playground may have a stall selling refreshments that pays rent to the local government.

Similarly, many other miscellaneous cases of government spending can be done using the profits generated by government operated enterprises. Though I believe the main goal of government enterprises are not profits but to reduce prices (hence should be operated as non-profits), the government can choose to reinvest its revenues from these ventures, into other areas of government. Some may accuse this as the government subsidizing itself, but unlike subsidies, this type of funding does not use taxpayer money. Instead it uses money from the fair exchange of goods and services.

Government spending that would be cut or replaced

The areas of government spending that would be cut under the Georgist system will be any funding that disproportionately benefits one group over another. 

The areas of government spending that should be cut mainly revolve around subsidies. The nature of subsidies is unequal benefit, where the subsidised group (private entities) benefits disproportionately at the cost of everyone else. Subsidies violate the equal compensation rule we’ve established, which means it must be abolished.

As mentioned before, subsidies can be replaced by government loans to businesses either with low interest or no interest. Loans do benefit individual groups, but at the end of the day society is repaid and no land value was appropriated without a fair exchange. There is a debate to be had on whether it is right for the government to invest tax money in that way, but it is out of the scope of this article. This is simply a more justifiable alternative to do what modern governments commonly do under the Georgist requirements I have stipulated.

The areas of government spending that would be replaced by CD are most cash payment-based welfare programs or pensions. I will list and briefly explain why these programs are redundant. 

• Unemployment: CD ensures that unemployed persons always have a safety net to get them through temporary unemployment. The administrative costs for unemployment benefits are relatively high and sometimes disincentivises employment. 

• Pension: CD is a universal basic income received for life, therefore, retirees will still have income that will fund their necessities. Removing pension schemes also reduces administrative costs.

• Family benefits: Childcare and related expenses will be supplemented by the CD received by the child. Again, CD reduces administrative costs of means testing

• Most Welfare: most temporary assistance welfare programs would be superseded by CD which does not require as much administration or assessment as every citizen is entitled to it regardless of circumstance. CD also removes the stress of losing eligibility and the complex application processes. 

Conclusion

In summary, government spending of revenues from compensation type taxes should be reserved for compensating the whole of society. As most types of spending tend to benefit some more than others, then they need to be funded by fees or vouchers that give individuals freedom to opt out of goods and services they don’t want either by not paying (fees) or redeeming unused vouchers for cash.

For goods and services that are universal in one or more jurisdictions; revenues from compensation type taxes from those jurisdictions can be pooled to fund those projects to prevent citizens from paying for goods and services they wouldn’t access due to distance.

Finally, miscellaneous cases can be funded by a mix of government loans and profits from government enterprises. These methods of funding ensure the purity of purpose of Georgist taxation remains intact whilst the entire range of government goods and services remain funded.

By replacing the inefficient welfare programs and preferential subsidies; a just system is created, where each citizen receives in full what they are due in the way they desire without paying for goods and services they do not want or cannot access.