Tuesday, November 25, 2008
Abraham Bell (Bar Ilan, visiting at UConn) presented Private Takings at Connecticut Monday. In this provocative paper, delivered in the land of Kelo, Bell argues that private parties should be able to invoke a power like that of eminent domain in order to force land sales, at least in cases where: (1) the taker would be a superior owner of the property, (2) strategic barriers (holdouts, bilateral monopoly, asymmetric information) block voluntary transfers to the superior owner, and (3) the taker “properly compensates” the owner (by paying the owner’s true reserve price).
Bell does not fully specify how to determine when taker would be a superior owner or how to determine the price. However, he argues that requiring the taker to compensate the owner will help minimize excessive takings, and it could make private takings more efficient than some forms of public takings. For example, Bell identifies “government-mediated private takings,” in which the government acts as a “middleman” for a private party that wishes to seize property from an unwilling owner. Current law may result in too much government-mediated private taking, since the government, not the private party, bears the cost of “just compensation.” Bell offers the example of the City of Detroit, which, in an attempt to entice GM to remain in the jurisdiction, seized private property at a cost of $200 million and transferred it to GM for only $5 million. If GM had been required to spend $200 million, perhaps the taking would never have occurred.
Bell notes the fuzzy lines separating takings by eminent domain, takings by regulation, and taxation. It seemed to me that the appropriate tax analog to his proposal for private takings might be endowment taxation--taxation according to income-earning capacity, rather than actual income. Private takings and endowment taxation are similar at least insofar as both would encourage assets (human and real) to be put to their most productive use. Additionally, both endowment taxation and private takings would tend to minimize the extent to which people could retain economic gains attributable to brute luck (talents; finding one’s property coveted by a developer). Of course, the arguments for endowment taxation usually begin from the question of how to fairly distribute the tax burden across the members of society, not from the question of how to maximize the productivity of human capital.
The liberal egalitarian objection to endowment taxation--that it unjustly constrains life decisions--would not apply with the same force to private takings, although private takings would constrain land owners’ choices regarding when to alienate their property. Like endowment taxation, private takings face difficult measurement questions. Just as we cannot accurately measure people’s endowment, private takings would raise difficult questions about who is a superior owner of land, and how much a private taker should be required to pay to a current owner unwilling to sell in a private market transaction.