Back to the future: Iceland’s 300 years-young innovation

[This travelogue/tax commentary was written in May 2008, just getting around to spiffing it up now.]

The spectacular scenery here at Natural Bridge plus the broadband access has given me the chance to jot down some thoughts which you may feel free to share.

Reflecting on God’s seemingly limitless generosity, as well as on the nature of man, it is time that we take a 700-year step backward to learn from Iceland’s unique tax structure, to eliminate the concept of property-based taxation; replacing taxing entities at the city, county, state and federal levels with a bill-paying function so that the revenue stream is actually tracked as a function of services provided and not as an entitlement for largesse and political redistribution.

Years ago, people hid their misappropriations with the ruse that we couldn’t track costs accurately enough. Since we can collect real-time data on international cellular phone calls on a per second basis and accurately bill them in multiple currencies, there is no question we can accurately bill on land that does not move, or the cost of trash collection, per capita road use (if you don’t own a car, that’s  prima facae evidence that you’re in the public transportation sector), water, sewer and so on. One of the keys here is separating the cost of services from the cost of collection, reporting both separately.

New Zealand has demonstrated tremendous economic success with this kind of financial transparency, yet we know this truth-in-operations is anathema to carbon-free wastrels “who will not serve.” (ping @systhink if you want more on the carbon-free wastrels stuff, it’s hilarious, really!)

I’m not advocating no taxes per se, but to whom they are paid: if the taxing entity had to compete for the revenue with any billing provider who would happily undercut their cost of collection and there by drop the total payments that need to be remitted, then we would see service levels skyrocket and tax rates drop. Why? Because the tax rates would be set by the actual bill-payers themselves through their choice of services provided. The reason people wouldn’t “choose to pay zero” is that they wouldn’t get any services if they did.

Dakota County, MN proudly promotes the fact on their website that they have the lowest property tax rates in the state. Even more to the point, Ravenna township has a formal stated policy of providing no city services, so that they’ve eliminated “scope creep” in tax rates, driven by the almost invisible yet relentless desire to get something for nothing. This phrase “something for nothing” is really stealing, because what they’re saying in 99% of the cases I’d venture, is getting something for which someone else had to pay!

In one sense, this is privatizing the tax function (which by definition sounds like a good thing), because it is abundantly clear that the financial transparency and accountability is not where it should be. I think many people would agree that taxing authorities and the politicians that depend on them for funding their pet programs are like Pharisees:

Book of Matthew Chapter 23 Verses 3-4

(for bible-thumpers, Mt 23:4  = Lk 11:46)

From a personal example, I can relate that Bastrop County, TX Tax Assessor-Collector has twice “stolen” from me, first by claiming they didn’t know my address (yet the Assessor personally knows my Mom), so they claimed that I owed back taxes to 1996(!!) then by claiming that the surveyor’s error on the gov’t land survey is my problem and that they are entitled to go back to 2003 and charge me interest and penalties on my land!!

Two key requirements: Financial transparency and intimate knowledge (i.e. knowing where the money “should go”) are essential to eliminating this:

If I were free to pay any provider of service rather than the Bastrop County clique who seem to have a special penchant for giving grief to out of area addressees, then these cronies would be “cut off at the pass.” Structurally speaking, the motive to sin is greatly reduced or eliminated if, when they propose a tax bill that is too high, I can simply choose another tax-paying entity that offers a lower rate, since the base rate, the actual cost of providing services, is separated from the cost of collection.

Local is important too, for government or private industry. You’ve got to have an electric lineman nearby when the power goes out from a storm.

These two concepts: transparency and intimacy are not news to anyone of faith. We know from natural law that we are “wired for community.” In a less nice vein, there is the adage that it’s harder to steal when you’re looking someone in the eye.

Further reading on this “overhead and cost of labor concept” is in one of my favorite books: Relevance Lost by Kaplan and Johnson.

The uneasy connection between God and Mammon:

As a devout, practicing Catholic, it’s very instructional to examine another example of loving the church in spite of the human flaws that come with it. Iceland had this tax-payment-freedom-of-choice until the Catholic church tied tax payments (forced tithing really) to a particular location. Once a source of power (revenue) was tied to geography that couldn’t change, then the feedback for improving services diminished so that this same power became concentrated in fewer and fewer, notably secular, hands. People no longer had an immediate recourse to eliminate bad service, that of changing the service provider. This obviously glosses over the many details of how church tithes got mixed up with secular power, but the central fact is that Icelandic society had for hundreds of years been free of the sort of corruption the church in Europe experienced.

This grew more oppressive until it resulted in the the 13th century dissolution of the national “Althing” sort of a super-chamber of commerce, that was the Icelandic government council. Tying payments to a particular provider without competition was the death knell for this freedom-of-payer system, unique in all the world from what I’ve been able to find.

Keep the faith,


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A walk in the forest…

Systems Thinking teaches us how to scale our perspective to study the forest or the trees, while Systems Engineering tells us what to do with the data we find.

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