I was researching what the Modern Monetary Theorists would think about a wealth tax.  It lead me to the New Economic Perspectives article America’s Deceptive 2012 Fiscal Cliff – Part 3.

Why tax the economy at all? And why financial and tax reform should go together.

Taxes pay for the cost of government by withdrawing income from the parties being taxed. From Adam Smith through John Stuart Mill to the Progressive Era, general agreement emerged that the most appropriate taxes should not fall on labor, capital or on sales of basic consumer needs. Such taxes raise the break-even cost of employing labor. In today’s world, FICA wage withholding for Social Security raises the price that employers must pay their work force to maintain living standards and buy the products they produce.

However, these economists singled out one kind of tax that does not increase prices: taxes on the land’s rental value, natural resource rents and monopoly rents. These payments for rent-extraction rights are not a return to “factors of production,” but are privatized levy reflecting privileges that have no ongoing cost of production. They are rentier rake-offs.
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If the rise in real estate prices (mainly site values) had been taxed, there would have been no financial overgrowth, because this price-gain would have been collected as the tax base. The government would not have needed to tax labor either via income tax, FICA wage withholding or consumer sales. And taken in conjunction with the government’s money-creating power, there would have been little need for public debt to grow. Taxing rent extraction privileges thus would minimize debt levels and taxes on the 99%.
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Today’s central financial problem is that the banking system lends mainly for rent extraction opportunities rather than for tangible capital investment and economic growth to raise living standards. To maximize rent, it has lobbied to untax land and natural resources. At issue in today’s tax and financial crisis is thus whether the world is going to have an economy based on progressive industrial democracy or a financialized and polarizing rent-extracting society.

It may take a while to digest this article and separate our preconceived notions.  Also we have to be careful to not confuse the technical term “rent” from our everyday usage.

Wikipedia has the definition of Economic rent.

In economics, economic rent is an analytic term for the portion of income paid to a factor of production in excess of its opportunity cost. Economic rent should not be confused with the more common term rent; a payment for the temporary use of a good or property.

This definition uses some economics terms that require their own definition before you can fully understand the definition of economic rent.  So rather than go down this rat hole, suffice it to say that economic rent is not the same as the rent we think of when we rent an apartment.

The article does call into question the tax payers rebellion against increasing real estate taxes based on the artificially inflated values of said real estate.  Perhaps we tax payers got hit with the unintended consequences of the success of our rebellion.  As usual, we were tricked into rebelling against the wrong people.  We all had visions of getting filthy rich on real estate – especially in places like California – just like many people now think that they might someday be rich like the 1% are.  Instead, with the fall of real estate values from their inflated values, our mortgaged real estate ownership is feeling more like the proverbial albatross around our necks.

Read on to America’s Deceptive 2012 Fiscal Cliff – Part 4.

But the landowning and financial classes fought back, seeking to expunge the central policy conclusion of classical economics: the doctrine that free-lunch economic rent should serve as the tax base for economies seeking to be most efficient and fair. Imbued with academic legitimacy by the University of Chicago (which Upton Sinclair aptly named the University of Standard Oil) the new post-classical economics has adopted Milton Friedman’s motto: “There Is No Such Thing As A Free Lunch” (TINSTAAFL). If it is not seen, it has less likelihood of being taxed.

The political problem faced by rentiers – the “idle rich” siphoning off most of the economy’s gains for themselves – is to convince voters to agree that labor and consumers should be taxed rather than the financial gains of the wealthiest 1%. How long can they defer people from seeing that making interest tax-exempt pushes the government’s budget further into deficit? To free financial wealth and asset-price gains from taxes – while blocking the government from financing its deficits by its own public option for money creation – the academics sponsored by financial lobbyists hijacked monetary theory, fiscal policy and economic theory in general. On seeming grounds of efficiency they claimed that government no longer should regulate Wall Street and its corporate clients. Instead of criticizing rent seeking as in earlier centuries, they depicted government as an oppressive Leviathan for using its power to protect markets from monopolies, crooked drug companies, health insurance companies and predatory finance.

I am just starting to read this part myself.