One of the principle arguments leveled against Georgism is the allegation that land values would not be a sufficient tax base to raise the revenue needed for the functions of government. While this argument in itself is questionable, it misses a much bigger point. The government has spent more than it takes in for a long time. Of course, under our current system, this is cause for concern. We worry about all the debt we are incurring, which is in fact an inevitable consequence of our current monetary system. The federal income tax was actually initially passed alongside the Federal Reserve Act as a means to pay off the interest on our national debt. The portion of tax revenue devoted to paying off this interest has grown continually since then. If we keep going down this path, it will eventually eat up our entire federal budget.
However, there is another way. If we simply nationalize the Federal Reserve, the government can then issue its own debt-free money for use on wealth-creating public projects. So long as the wealth created is equal to the money created, there is no inflation. Government could theoretically finance all of its functions in this way without having to take a single dime in taxes. It would not be mortgaging our children's future with more debt, but would simply be providing money for the production of goods and services.
Of course, this scenario is unlikely, because not every investment pays off equally, and therefore some government spending will end up being inflationary. Therefore, some mechanism has to be in place to monitor and control inflation. Taxes can fill this role by recycling money through the system and removing some of it from circulation when necessary. But what is important is that under such a system, the primary role of taxes is not to raise revenue, but rather to control inflation.
Thus, one of the biggest arguments against Georgism is defeated. It doesn't matter if land value taxes are a sufficient tax base, because the very concept of a tax base is rendered irrelevant, at least at the federal level. At the state level, taxes would still be needed for collecting revenue, with federal earmarks subsidizing them. And of course, land value taxation is the ideal tax for the state level. At this level, its efficacy is demonstrated by New Hampshire, which has no state income tax or sales tax, and relies almost entirely on property taxes to raise revenue.
The federal government could then abolish the income tax and turn to a power which was written into the Constitution long before the Sixteenth amendment: apportionment from the states. The amount to be apportioned would be rather small, as it would not be necessary for raising revenue. It would be just enough to control inflation, which would be closely monitored by the Federal Reserve, just as they do today. When inflation is spotted, a corresponding amount of money would be removed from circulation, thus achieving price stability.
There would, of course, be other purposes for taxes, aside from controlling inflation. The land value tax would still be an excellent idea because of its many utilitarian benefits, such as reducing in inequality, enhancing productivity, and discouraging speculation. Other incentive-based taxes such as a carbon tax would also serve a purpose. But the revenue these taxes bring in would all be irrelevant for the federal government. Instead of spending what it gets, the government would get what it spends.
