The problem of taxation. Part One

Introduction

For the purposes of this post, I will define Space governments as the owners of space habitats.

Governments of space colonies need funding, both for protecting their citizen and for maintaining space habitats (and for several other purposes, depending on the specific policies of space colonies). The question is how Space governments would raise their funding. In this post I will discuss several proposals for taxation and non-tax revenues.

Regardless how future space communities will be organized, one thing is certain: space habitats have to be maintained and are someone’s property. The communities of the larger space habitats, like the Bernal sphere or the O’Neill cylinder, with their several thousands of inhabitants, also need security, both internal and external. So the “owners” of space habitats have to provide at least the following services: maintenance, police and national defense. Also highly desirable is the arbitration of conflicts between residents of the space habitat. But governments will almost certainly offer many other services, especially when they have to compete with other space colonies for citizens who are able to vote with their feet. Of course some space governments will only a minimal government package, with low taxes, but I guess that many more governments will offer more elaborate bundles of governmental services.

Whatever services a government of space colony offers, they need to be funded. One way to do this by imposing a head tax, a fixed amount of money to be paid per person. In fact this is a kind of “rent”, where the taxpayer pays for the “right” to live in a particular space habitat. A head tax is especially interesting for those space communities which are committed to a minimal state. But for space communities with a more elaborate government a head tax will most likely to be insufficient for funding these services, or they had to be so high, that no person is willing to pay them, or many are simply unable to pay them. Foot voting present a fundamental problem for any space government: people like to have many services to be provided by their governments, but are less willing to pay the required taxes.

Since space colonies are new comers in the global “market” of societies, the cannot rely on for example feelings of nationalism, people who strongly identify with their country are more likely to pay their taxes (with the possible sole exception of the USA). Furthermore, we can safely assume that the persons most likely to emigrate to a space colony are those who have the least attachments to their homelands. Attracting immigrants with income tax rates of 90% will not work.

Therefore we need to find other ways for funding space governments.

Canons of taxation

Adam Smith formulated in his famous work On the Wealth of Nations, four rules for levying taxes which governments should keep in mind. These rules are known as the canons of taxation.

1. Canon of equity: this is the principle that people should pay taxes according to their ability to pay and the benefits they receive from society. The logic is that people who has the greatest advantage of public services should also contribute the most of it.

2. Canon of certainty: this means that people should know in advance how much they had to pay. This is both beneficial for the government as the tax payers, since they can plan their revenue and obligations in advance.

3. Canon of convenience: taxation and the collection thereof should not place an unreasonable on the tax payer. For example taxes should be collected at the moment the tax payer receives the money.

4. Canon of economy: the collection of taxes should not be more expensive than the revenue. The lower the costs of collection, the better. If a tax is difficult to collect, less revenue can be spent on public services since more money has to be spent on collection.

For more information on the canons of taxation can be found on this site, it also discusses additional canons made by modern economists.

Tax on consumption

Many popular proposals for abolishing income taxes advocate their replacement with sale or value-added taxes. There are several problems with this idea. First of all are taxes on consumption regressive to income. Wealthier people spend as a proportion of their income less than poorer people, the wealthier a person is the more he will either save or invest his money instead of consuming. Because basics needs are (almost) the same for everyone, regardless of their income. This problem might be solved be charging a higher tax rate on luxury goods than on basic goods, however this leads to the question of what is a basic or luxury good? And who decides this?

A basic problem with consumption taxes is the collection, these taxes are collected by retailers from their costumers. Although costumers will be pay their taxes without notice, the tax officers have to check whether the retailers are collecting the right amount of revenue. It’s easy to imagine that some shopkeeper collects the sales tax from his costumers, but keeps a part of the money himself.

Another complication is in our age the on-line sale of goods and services. On line shopping is not restricted by national boundaries, so if one buy something on the Internet from abroad, how would you impose a sales tax? Recall that sales/VAT taxes are collected from retailers, not consumers, and foreign based retailers are not bound by laws of other countries.

Income taxes

Most modern countries rely nowadays on taxation on income as prime source of public revenue. A common system is Pay as you earn, which means that your employer will withhold some of your earnings and transfers it to the tax agency. Income taxes may be levied on both natural persons as on corporations.

However a common problem is unreported employment. For employers it is attractive to employ people unreported, because they will have to pay less wages for the same amount of work. Another problem we have with income taxes is the fact that these taxes are violating people’s privacy. In order to calculate how much money someone owes to the state, tax officers has to collect a huge amount of data: how much and what work one has done, what kind of assets one has and so on.

Income taxes are usually progressive or proportional. Also most countries have a lot of deductions for all kinds of stuff, mortgage interest rate, if you have a business, or whatever. Actually these deductions are more a tool for wealthy people to avoid taxes legally, if you afford to pay a good accountant you can save a lot on your tax by exploiting all kinds of loopholes. Therefore tax agencies has to spend a lot of efforts in order check whether tax deductions are filled legitimately. Because of this, we are no fan of such deduction. In our view it is better to have a low tax rate with no deduction than a higher rate with much possible deductions.

Non-tax revenues

A common definition of tax is:

A compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions (Oxford dictionaries).

This helps us to understand what non-tax revenue is. However this definition is missing one essential aspect of taxation, namely that taxes are without a direct quid pro quo for the tax payer. Non-tax revenues are non-compulsory payments for goods and services provided by the government to private parties.

Many governments in the world have multiple sources of non-tax revenues. In some countries this kind of revenue is a substantial part of public funding. We should ask what kind of non-tax revenues could be utilized by the governments of Space habitats. This question is in fact equivalent to what kind of services can space colonies provide to their residents for the purpose of raising public revenue?

There is actually a very obvious service which can be provided by the governments of space habitats: land. Since they are the owners of the colony, all land contained in the habitat is their property. By renting land to interested private parties, space governments can raise revenue to fund their activities. Interestingly, by providing certain public services the governments of space colonies might increase the rental value of their land. Good school, clean streets, low crime rates are among of several factors which will attract potential emigrants from Earth.

The idea of using land rents to fund governments is not a new one. During the 19th century American economist Henry George argued in his famous work Progress and Poverty, that a so-called Land Value Tax (LVT) would not only be quite efficient but it would also raise sufficient revenue for governments to fund public services.

Because land cannot be hidden or moved out of the country, collecting a LVT is quite efficient. Most modern countries have already an elaborate registration of ground ownership, and space colonies should easily be able to keep track of who rents  what and how much land. A further advantage of the LVT is that it does not discriminate among different classes of tax payer. It does not matter whether a single person, a family or a corporation rents the land.

In a future post we will explain more about Henry George and his defense of the LVT. Here we want to state that according to George taxation on income from labour and capital is both immoral and bad for the economy. A tax on land, however, is just because land is not created by any particular human and hence belong equally to all.

Land in a Georgist sense does not only include “area”, but also the electromagnetic spectrum (used for wireless communication) (among other things). Because the EM spectrum is not made by man, it also belong equally to all. Licensing the radio spectrum will be good source of additional revenue for space colonies.

Another important source of non-tax revenue for space colonies are the sale of asteroidal resources. Asteroid mining is, we believe, is the raison d’être of space colonization and as we has argued in a previous post, it would be one of the most profitable activities of space colonists. However, terrestrial experiences has taught us that funding governments with the easy money from natural resource extraction is often detrimental for both the economy as political freedom.

Economists talk about the Dutch disease in this context. The export of a natural resource by a nation often leads to increase in public spending and to a decrease in productive activity. Instead of spending revenue from resource extraction, it would be better to put these into a sovereign wealth fund and to use the dividend from this fund for public spending. In future post we will discuss the role of sovereign wealth funds for space colony governments.

See here for part two of this post.

For more information on the land value tax:

http://www.newstatesman.com/economics/2013/01/whats-justification-land-value-tax

http://geolib.pair.com/essays/sullivan.dan/royallib.html

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Why colonizing Mars is a bad idea

Again someone has announced a flawed plan to send people to Mars, this time the person is Denis Tito (who is famous for being the first space tourist). It appears normal these days for people to have their very own Mars programs, and unfortunately the mass media gives them more coverage than those fanatics deserve.  Because it is important that people learn about the arguments against Mars, I will give a view links to articles and youtube videos, in which is explained in plain language why colonizing Mars is a bad idea.

The following YouTube videos are from Hank of Scishow

http://www.youtube.com/watch?v=N1aggLqdbd0

http://www.youtube.com/watch?v=NiCDQ_91Pks

The following article is from Eric Drexler:

The Case Against Mars

The following articles are our own posts on the subject:

Colonization of Mars

Mars one

Elon Musk’s Mars plan scrutinized

 

 

Elon Musk’s Mars plan scrutinized

South African entrepreneur Elon Musk announced his plan to colonize Mars some time ago. In this post I will critically review his plan and I will compare with that other plan to colonize our Red neighbour by 2023. Of course, we of Republic of Lagrangia are quite sceptical about any plan of colonizing Mars, however for a discussion of our position we will refer to this post.

The Huffington post devoted an article to Elon Musk’s plans. According to this article Musk wants that prospective colonists should pay half a million dollars for their ticket to Mars. This amount is both too low and too high. First I will explain why it is too low. We all know that (manned) spaceflight is a very expensive enterprise, for comparison: it takes 7.5 million USD a day to keep one man on the International Space Station. Actually Dennis Tito got a huge discount for his trip to the ISS, he paid 20 million USD for something less than 8 days on the ISS.

We might assume that the costs of a manned trip to Mars will be at least of the same order, perhaps a little bit more. An educated guess for the costs of a Mars mission might be 15 million USD per crew member a day. Further Musk wants to start with 10 people, most Mars missions assume a minimal mission duration of 501 days. Total costs will be 7.515 billion USD. If Musk is seeking to fund his colonization plans with the sale of tickets only, he has to raise the price enormously or he has to find additional funding.

On the other hand the ticket price is much to high. Only multimillionaires can afford to pay this without being declared bankrupt. Unfortunately the number of multimillionaires willing to pay such amount of money in order to emigrate to an extra-terrestrial desert, will be probably very low. It would surprise me, if it would be more than a few hundred (on the whole planet).

And why should the very wealthy want to emigrate to another planet anyway? History learns us that it are the poor and disadvantaged who are most likely to emigrate, looking somewhere else for better chances in life. Yes, rich people emigrate also, but mostly to places with high and expensive services, which Mars totally lacks.

The people who are most willing to emigrate to Mars are educated young people who have not much money, and therefore almost nothing to lose. How would these people be able to pay their ticket? Not at all. Of course someone else might pay for their ticket, but why? Well it might happen that the multimillionaires who are willing to emigrate to Mars, are looking for personal on their Martian estates.

In the early days of the colonization of the America’s there was an institute called indentured servitude. Under this system young people were transported from Europe to America, while their journey was paid by someone else, mostly by a ship captain. However this was not a gift but a loan, which had to be paid off. So in return for the trip, the so-called indentured was obliged to work for several years, usually seven, in order to repay the debt. When an indentured servant arrived in America, the ship captain usually sold the indenture to people who were looking for cheap labour.

In fact indentured servitude is a kind of (voluntary) temporary slavery. It’s not hard to imagine how a spacecraft is launched from Earth with a crew of ten, of which nine are the servants of the tenth person. Since 500,000 USD for each immigrant is a lot of money, even for the very rich, those who are paying someone’s else ticket will see this as an investment. And investments are motivated by return on investment, so it’s more than likely that wealthy Martians will make their indentured servants work hard.

Maybe this is what Musk really wants: a Mars covered by large domed estates, owned by wealthy terrestrial tax-refugees, on which (nearly) all work is done by contract slaves. Sounds to me as a quite feudalist society.

Of course there are other ways to fund Musk’s dreams of establishing a colony on the Red planet with 80,000 residents. Since we can safely assume that no one will pay 500,000 USD for an one-way ticket to Mars, he should think of lowering the ticket price. However this means even less money to fund his expensive ambitions.

One solution is to use a lottery system. Suppose that there on this planet some several hundred thousand to a few million people who might be willing to emigrate to Mars, but we know there is only place for ten on the first manned spaceflight to the Red planet. Now it is possible to sell lottery tickets to everyone interested, instead of winning a large sum of money you will win a trip to Mars. What would be the price of such lottery ticket? Selling one million tickets for 10,000 USD would raise 10 billion USD, which would be enough for a manned mission to Mars (this amount is higher than 7.5 billion I mentioned above, however that was a minimal estimate).

If Musk managed to collect enough funding for his Mars program, he has only enough for sending people to Mars and setting up a colony. However he lacks any idea how such Mars colony would survive economically, the colonists should still need to import stuff from Earth. This is especially true if the colony only has a few dozen members, but also in case of just 80,000 colonists. This means that the Martians should have to export stuff to Earth in exchange for the necessary imports. The only suitable economic activity we can think of on Mars, at least in first decades after the first landing, is mining. (Transit time between Mars and Earth make space tourism very unlikely.) However mining on Mars would never be able to compete with Asteroid mining.

Our conclusion is that Elon Musk’s plan for the colonization of Mars is just another heavily flawed proposal for a manned mission to Mars by private “space” groups. Musk shows no sense of realism, either in regard of the total mission costs or what people are reasonably willing to pay for a ticket. Actually we believe that Musk suffers from what is known as planetary chauvinism, a very dangerous condition.

Dealing with piracy

My own country, the Netherlands, happens to be one of the few countries which do not allow private armed security guards on ships faring under Dutch flag. International law states that if a ship is in international waters the laws of its flag nation applies on board, in words such a ship is part of the flag nation’s territory.

A very big problem these days, are Somalian pirates who are threatening global shipping. Since a large portion of all cargo transit between (Western) Europe and Asia, goes through the Suez channel and subsequently come close to Somalia, this is an issue for almost every nation on Earth. It’s therefore not without reason that many nations has sent their navies to Somalia in order to combat the pirates. The Dutch navy is one of those.

Only the problem is that on the oceans there are huge distances between ships, commercial and navy. If a ship is attacked by pirates, it may take a few days before a navy vessel can come close enough to take action. Further there are far more commercial ships, and thus potential targets, than navy ships.

Since most Somalian pirates are operating in small groups and are relatively weakly armed, an effective remedy against pirates is to employ private armed security guards. Because these guard are on board of the ship they are protecting, this solution is much cheaper than relying on navy support. We, and many others, believe in a right of self-defense.

Of course, private armed security guards do not make navies unnecessary, they only help navies in combating piracy in international waters. That the Dutch government still refuses to allow them is something we do not understand. Fortunately a famous Dutch think tank on foreign relation and military policy, Clingendael Institute, has published a report urging the government to allow private security guards on Dutch ships.

You might ask why I address this point on this blog about space colonization. I do this because I strongly believe that when the humanization of space has become a reality, it will only be a matter of time, before space pirates will arise. In all societies there are criminals, Settlements in outer space will prove not be an exception. Some criminals will only operate within some space settlements, other law-breakers will try to exploit the advantages of outer space.

Virtually all space advocates agree on that the distances between space settlements will be large and that there be a lot of trade between space settlements. These two facts provide a perfect opportunity for space pirates. Since it may take weeks, even months, before the armed forces of any space nation may come to help, inter-settlement transport of both people and cargo is extremely vulnerable for criminal actions.

It will be clear that the crew of cargo spacecrafts cannot rely on the assistance of the official armed forces in case of any hostile attack. The only thing that is realistic option is to allow arms on these spacecrafts, so that the crew can defend themselves. Of course, the armed forces will do anything to combat these outlaws, actually the very existence of space pirates may be the prime raison d’être for the militaries of space nations.

Alternative for Abortion

This post describes a personal opinion of the author, and is therefore not necessarily representative of Republic of Lagrangia or the space movement in general.

Although I am a proponent of humanistic secular liberalism, I happen also to be pro-life, i.e.  I oppose abortion, which I consider as a violation of the right to life, a fundamental right in classical liberal theory. Since I do not believe that this right can be denied on developmental state, I reject the slaughter of animals and consequently I choose to be a vegetarian. The idea you can be both vegetarian and pro-abortion, is in my opinion hypocritical.

However, unlike (some) many christian pro-lifers, I do support abortion in a very few situations: in case pregnancy is the result of rape or incest, the (mental) health of the mother is at stake or in case of serious defects of the foetus. A further difference between me and many “conservative” members of the pro-life movement, is that fully support both adequate sex education and the use of contraceptives. It has been proven that proper sex education (as opposed to “abstinence only”) reduce both teenage pregnancies and subsequent abortions.

Abstinence maybe an effective tool to prevent unwanted pregnancies, it is unrealistically to believe that abstinence only will solve this problem. Whatever you might want, people are going to have sex before and outside marriage, and it is in contradiction to liberalism to impose legal prohibitions against non marital sex.

The first step to eliminate the evil of abortion is to reduce the number of unwanted pregnancies. Contraceptives are essential for this, one thing the government may do is to distribute free or cheap (female) condoms in public spaces. Of course condom are not the miracle solution, although they may do a great job. People may forget to buy or use a condom from time to time, and condoms may break during use.

An interesting new way of contraception is discussed in Robin Baker‘s book Sex in the Future. Baker proposes a system in which people get sterilized at young age (16 or 18 for instance) and that their gametes would be stored ex vivo. When a couple wants to start a family they would retrieve their gametes from the storage and became pregnant through in vitro fertilization. Of course this program should be entirely voluntary, although it would be quite effective.

Another topic discussed in Sex in the Future, are artificial uteri. I discussed this in a previous post, although very shallowly. There many prospective uses for artificial uteri, we can think about career women who want to have children, but do not want to be pregnant because of their job, women with defective uteri or no uteri at all, male same-sex couples who want to start a family etcetera.

In these particular examples the pregnancy will start with in vitro fertilization, although scientists who are experimenting with artificial uteri (on animals, of course) usually transfer embryos from their natural environment to the artificial one. As far as I know, no scientists has ever succeed to establish a full ex vivo pregnancy. The possibility of transferring a foetus from a natural to an artificial uterus has a few prospective uses.

One example would be in case of pregnant woman who has died before her child was sufficiently developed to survive outside the body. Another example would be in case a woman who wants an abortion, but doesn’t fulfil to the requisites I mentioned above. If artificial uteri were available, a woman would be able to choose to terminate her pregnancy without killing her child.

In case the woman does not want to have a family, artificial uteri would enable the father to raise his child, provided he is both known and willing to have a child. Otherwise the child would become a warden of the state from the moment he or she is transferred into an artificial uterus.

Some pro-lifers suggest that adoption should be an alternative for abortion. I agree with them only partially. Their plans still force women to carry on their pregnancies to term, since giving up a child for adoption can only happen after birth. Artificial uteri will free women from this kind of compulsion.

Public transportation in O’Neill cylinders

In a previous post I discussed the spatial planning of the interior of O’Neill Cylinders. In a note I promised to make another post about (public) transportation inside O’Neill cylinders. For the sake of the argument, I will assume here that the chosen spatial planning is either the Broadacre cityGarden city or Colombia design. Further I want to recall that a O’Neill cylinders has a length of approximately 35 kilometers and a diameter of 6 kilometers (specific dimension may vary among different sources, however the difference is usually only a few kilometers).

A key feature of the design of the O’Neill cylinder is the alternating arrangement of “valleys” (stripes of land) and windows, three of each. It follows from the given dimension that each valley is approximately 3 kilometers wide and 35 kilometers long. Gerard O’Neill himself proposed that there would be parallel to the valley’s heartline a subterranean maglev line. This would function like most subway systems on Earth and would enable (long distance) rapid transit in an O’Neill cylinder. However this system, would not quite suitable for short distance travel, therefore a second transportation system is required.

While the maglev subway will serve as the core of the framework of intra-habitat transportation, there will be finer second network. What requirements do we look for? Ideally we would like an on-demand service, great amount of privacy and the ability to choose our destination. However do not like to waste a lot of time for searching for parking lots. Personal Rapid Transit (PRT) is a proposed idea which would combine the best of private and public transportation.

In order to show what a PRT system might look like, I have selected two YouTube videos about personal rapid transit systems. The first YouTube video (of 8.45 minutes) is about the personal rapid systems as designed by Swedish company Vectus.

http://www.youtube.com/watch?v=S1rf_lOb3b0&list=PL4229DA20757B7CD6

This second YouTube video (5.55 min) is a promotional video of Vectus, in which they explain how their product will work.

http://www.youtube.com/watch?v=V5W3OSZu9oA

Yes, I do realise that Vectus is a commercial company which seeks to sell its concepts. Nevertheless, I think that this “sales man videos” give a clear picture how PRT systems would operate in practice.

The prospects of personal rapid transit systems are bright. They will enable to establish the first car-free society in history without sacrificing the individual freedom of movement.

For the establishment of secular, liberal, humanist and republican space settlements