Update: OK this post is generating lots of interest but ppl seem like they are not clicking on the link at the end of the post. This post is paraphrase of that post.
Economists frequently argue that taxing the produce from the family garden is a good idea – for example, see these papers/posts making the case for taxing food in the US, Canada, and New Zealand.
The equity argument for taxing the family garden is straightforward. Suppose everyone produces $200 a month of food from their family garden. If the family garden were taxed at 10 percent, everyone would pay about $20 in tax (or slightly less, if people cut back on their food production when the tax is introduced). If part of the revenue raised by taxing garden production was used to give every poor family a $30 tax credit, the tax on gardens would actually increase the well-being of the worst off members of society. Any additional revenues raised could be used either to decrease other taxes, leading to greater economic efficiency, or to provide needed social or infrastructure programs, further enhancing efficiency and/or equity.
Now the politics of taxing gardens and getting the political will to engage in progressive redistribution of taxes in this ideological climate is highly suspect. And why not just tax those wealthy enough to buy groceries with a tax on groceries?
Forget the equity argument, the heart of the economic argument for taxing the produce from the family garden is that it increases economic efficiency.
There’s a short version of the efficiency argument and a long version. The short version goes something like this: “If gardens aren’t taxed, but other goods are, then people’s choices will be distorted. They will substitute growing their own food for buying groceries and other goods, hence the economy will devote too many resources to gardening and too few to producing other goods. Economic efficiency will be compromised.”
The long version of the case for taxing the family garden can be found here.
The short version is pretty weak. Gardening doesn’t create matter from nothing. Soil inputs, seeds, seedlings, etc are bought; water consumption increases or rain barrels are bought; tools are purchased; new preserving equipments is procured. Sounds like a nice diversified economic activity to me.
Not to mention the bizarre assumption that people will devote their leisure time to gardening, or perhaps decrease hours at their job, to save money – only if the result is not taxed.
I’m low income right now. I don’t make enough to pay income taxes. Consumption taxes disproportionately affect the poor.
You have to click the link at the end of the post. What I am saying us that to be consistent textbook economists should also be making the argument for taxing the family garden. In fact they should be making the argument that every activity and form of consumption perhaps including sleep should be subject to a consumption tax. Or alternatively either everything should be subject to a consumption tax or nothing should be subject to a consumption tax. That is what is implied by the idea behind “efficiency distortions”
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You make Land Value Tax sound complicated.
The crux is in your statement “Suppose everyone produces $200 a month of food from their family garden.” This is the devilish detail.
A standard set of inputs will yield vastly different outputs across the board, depending on gardeners’ skill, soil conditions, microclimates, weather and just the nature of gardens. And even if everything harvest quantities meet some sort of norm, what will be the value offset for my woody-stemmed gai lan, of which only a few leaves are edible, and my knobby, black-spotted carrots, which take half an hour to trim and clean for every meal.
How can the value of the output ever be fairly measured without a visit to every plot at harvest time? Any economic efficiency is offset by regulatory inefficiency and inevitable widespread unfairness.
Sounds like your garden is very inefficient and expensive. If you were taxed on it, you would do less gardening and hopefully something more productive. That is the implication of the economic efficiency and taxation argument grounded in microeconomic theory. Maybe there is a problem with the theory?
This is totally crazy! I already pay property tax on the land my very small garden is on and sales tax on the seeds and plants I set out. I produce enough tomatoes to can a few for the winter, and enough peppers to freeze for soups and chili. I pay sales tax on the freezer bags and canning jars I buy. Is paying tax on my garden not the same as double taxation (paying taxes again on something I already pay taxes on)? I am already taxed to death!
Yes it is totally crazy, but from the POV of orthodox economic theory, the conclusion is impeccable.