Lots of LVT opponents fall back on the rather thin argument that LVT is somehow 'socialist'. Well it's not.
Part Two:
1. Let's imagine - purely as a thought experiment - that we went the whole hog and scrapped the following two groups of UK taxes; those on output, profits, employment and incomes (receipts about £370 billion per annum) and those on land or wealth generally (Council Tax, Business Rates, Stamp Duty etc, receipts about £70 billion per annum). Instead, we'd raise as much as we could from taxes on land values, let's say £350 billion.
2. I can't count the number of times I've heard people say that 'we should reduce taxes on business and replace them with taxes on consumption'. The problem is that the one tax considered to be a tax on consumption, i.e. VAT, is in fact a crude tax on output and is (largely) borne by businesses (i.e. by their shareholders and employees) and depresses output (and hence employment and profits) considerably.
3. As a simple question of fact, what percentage of all privately-owned non-agricultural land is in commercial use? Shall we call it ten per cent in round figures? It's probably less than that by surface area, but shops and offices in town centres tend to occupy the most expensive locations, so maybe it's ten per cent by value, or even twenty per cent.
4. As a simple question of maths, this means that the total tax payable by the wealth-producing sector would be in the order of £70 billion (as against £370 billion under current rules), and the remainder of land value tax, £280 billion, would be on land that is occupied largely for private and personal benefit, i.e. private consumption expenditure (which works out at about £11,000 or £12,000 per 'average' privately owned home)
What's not to like?
A grim document
15 hours ago
15 comments:
Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent.
– Adam Smith The Communist Manifesto... ;)
Slightly OT, and I'm sure you've covered this before, but what would be the effect of LVT on privately rented accomodation?
Would private rents not rise? Because if all other taxes on individuals were abolished and replaced with LVT surely those who are currently renting would have a massive rise in disposable income? And thus be able to pay a higher rent.
If LVT on the average house was £11-12K, that is considerably higher than the average rent (around my way anyway). So who pays it? If the landlord, then his asset is worthless as he's getting less in rent than his LVT is costing him. He would have to try and sell the house to a private buyer. In fact the private rented sector would disappear overnight, if rents did not rise to allow some return for the landlord.
This would lead to a massive glut of houses on the market and a collapse in prices. Not a bad thing in itself. A good thing even. But if the tax take from the LVT was to remain the same (which it would have to as no govt would accept a cut in income of (say) 40% overnight) the rate it was charged at would have to rise. So it wouldn't matter how much house prices fell, in order to maintain the revenue stream the rate would have to keep rising. Or govts would start to reintroduce other taxes to try and make up the shortfall. Income tax would be re-introduced 'for the rich', VAT at a few %, etc etc. And with time the ratchet effect would work its magic. We would have LVT and all the other taxes as well.
You are sadly mistaken if you think any govt would ever bind itself to one revenue stream that only rises very slowly as the economy grows, and declines if land values fall.
Politicians get votes by promising spending on things, and more crucially the electorate are addicted to the spending themselves. Any politician offering reduced public spending, and no chance of any increases, ad infinitum, would get short shrift at the ballot box.
I'm not saying a govt that lives within its means, and is constrained in its spending capacity, is a bad thing, in fact I'm in favour of it. I just think its never going to happen as we are too addicted to high house prices and high public spending.
The only way such a system can be introduced is in the wake of a massive collapse in society as we know it. Something that wipes the slate clean, and we all have to start again. Such as a hyperinflationary episode a la Weimar Germany. While life continues pretty much as before, a revolutionary change such as LVT will not be considered. There are too many vested interests. Private home owners, and the State, would both prefer the status quo.
Time to get back on track with cows
re point four, strictly speaking current taxes on 'wealth creating enterprise' are ultimately taxes on people - economies consisting entirely of people and things. In other words all taxes are taxes on people. So what you advocate just make this explicits, and it taxes the one thing that doesn't distort wealth creation.
Sobers: "Would private rents not rise? Because if all other taxes on individuals were abolished and replaced with LVT surely those who are currently renting would have a massive rise in disposable income? And thus be able to pay a higher rent."
Yes. The calculations are all a bit circular. The key is that people's net incomes after tax and rent would, on the whole, be the same or a bit higher.
"You are sadly mistaken if you think any govt would ever bind itself to one revenue stream that only rises very slowly as the economy grows, and declines if land values fall."
Most governments wouldn't, in that you are correct. But mine would.
"You are sadly mistaken if you think any govt would ever bind itself to one revenue stream that only rises very slowly as the economy grows, and declines if land values fall."
Maybe it wouldn't, but it should... And that's why we need some way to limit the power of government. Put a measure in the constitution that prevents new taxes being introduced and make it really hard to change the constitution (requiring 2/3 majority in both houses plus a 2/3 majority in a national referendum, say) and they'd be stuck with it. And that might cause them to think a little harder before wasting our money.
Sort of relevant. Watching a thing on Quest (yes, I know I know) the other day about the proposal to build a mass transit system based on thousands of 'prsonal pods' and a massive spend on infrastructure in Washington DC to 'alleviate the traffic problem of 1m people driving into WDC every day to get to work'. Hang on. Since the main industry in WDC is governemnt wouldn't it be simpler and cheaper to shut down at least 50% of the government rather than spend billions on an engineers wet dream? If they couldn't raise the money they wouldn't even think about spending it.
RA, agreed. Another reason why LVT will never happen, unfortunately (unless I were in charge).
L, I think shutting down 50% of the govt is a worthy aim in itself, but it's then a wider issue of matching the transport infrastructure to the number of people - you can either build the towns first and then do the transport afterwards (messy and expensive) or just built the roads and railways etc and then the buildings sort themselves out.
MW - or keep right out of the way of freedom and let human action sort itself and its infrastructure (aka the built environment) out. me? I'm much in favour of evolving things as people develop. 'Planning' stuff leads to ghettos, of all types.
L, I'm all in favour of that at lower levels as well, but it must be borne in mind that major roads, railways etc would never have happened without acts of parliament, compulsory purchase orders etc etc.
MW yeah, but the first railways were privately financed and sponsored. Sure, each one needed an act of parliament (I think) to get it going, but fundamentally it was a private initiative. F'rinstance would any private company have financed the Humber Bridge. Nope. But would one have financed the Dartford Crossing. yep.
Personally speaking I think the right to compulsory purchase should be extended to everyone (subject to a slight delay and "fine" of paying say 2 years LVT to the previous owner).
L, the whole topic is incredibly complicated, but nowadays not a mile of road or rail would be built without the state to push it through, whether it is publicly or privately financed.
AC1, go and join Ed in the 'rabid' corner. You won't catch me saying things like that.
Welcome to the 'rabid' corner AC1! :-)
I think the right to compulsory purchase should be extended to everyone
I wouldn't go as far as that, in fact I would be tempted to go the other way and give greater rights to landowners, for as long as they pay the LVT. These greater rights could include an end to "squatter's rights", right to roam, and even compulsory purchase itself.
How would the last one work? Say I own a field of little value, so low LVT. Govt decides to build a new motorway/houses/industrial park/whatever on my land. Land value goes up significantly, hence so does LVT. For as long as I can afford to pay the higher LVT I can prevent development of my field. If I can't or don't pay, then I am forced to sell my land. Note that even though I may have objected to the development, my land has not been stolen, as if I am forced to sell it I will get the new, much higher value that has resulted from the planning change.
Have I expelled myself from the rabid corner? Or just moved to a different one?
Ed, obviously I agree on squatters' rights. Re right to roam, the landowner would have to haggle with local council how much of his LVT bill the local council will pay if they want to have a public footpath, and then local residents have to pay their share of the LVT for the footpath.
It's the same logic with compulsory purchase, if you want to extend your airport, you just value Farmer's land rental value of £1 million per acre per year and he will soon cave in if he has to pay that.
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