Friday 25 February 2011

Killer Arguments Against LVT, not (96)

Let's deal with the Poor Widow Bogey once and for all, as played for the zillionth time here:

Just because someone lives in a £1M house does not mean they are rich or have massive amount of disposable income. it could mean they are pensioners struggling to get by but paid for their home over the decades.

Forcing people to sell their home just because the Labour party think "property" equals "fat cat" is ridiculous. Taxing objects already purchased is fundamentally wrong - tax income.(6)


I have suggested discounts or deferment schemes to get round this issue; or simply exempting pensioners, full stop, and all of these schemes would 'work', but you know what, sod it.

It is far simpler to tax all land (or land and buildings) at the same rate and for pensioners the get-out would be that they would be awarded an additional state pension, payable for life, based on whatever the tax bill is on their sole and main residence on the day the tax is introduced; and this is payable regardless whether they stay in that house or move.

So, assuming a Full-On Land Value Tax has replaced all other taxes, a widow shivering in an ex-Council flat in Glasgow pays £2,000 a year LVT and receives an extra £2,000 pension for life; another widow who struck lucky and is in a Hampstead Mansion pays £100,000 a year LVT and receives an extra £100,000 pension for life.

What's the point of the government taking with one hand and giving with the other?

1. To provide the nigh-perfect argument to the Poor Widow Bogey, no pensioner is 'forced to sell their home'.

2. Because it's easier and less distortionary to tax everything at the same rate and patch up the survivors via cash redistribution than it is to exempt people.

3. To ease the transition (and yes, we'd need to phase this out for subsequent cohorts of retirees, i.e. people who are 55 years old now will only get 50% paid back as a pension when they retire, and people who are 45 years old now will have to fend for themselves, or whatever). The end game would be that each pensioner gets a Citizen's Pension sufficient to cover basic cost of living for one person (food, eletricity etc would become much cheaper once all other taxes are scrapped) plus an additional amount equivalent to slightly more than half the LVT on an average or median home, how they choose to spend it is up to them.

4. The pension would be payable for life, so the Hampstead Widow might well decide to trade down a bit to somewhere where the bill is only £20,000 a year, and has £80,000 a year extra to spend (or to pass to her heirs; if she continues with the same lifestyle, by and large her heirs will inherit just as much as if she dies today and the heirs sold the house). So the on the tax-raising side, we still have an incentive for more efficient allocation of housing (a younger, productive couple can now trade up into that Hampstead Mansion).

5. It would highlight exactly how our Home-Owner-Ist tax system redistributes income and wealth from the productive economy to land owners:

Under current rules, our Hampstead Widow could trade down and buy an annuity with the proceeds of (say) £80,000 a year. So the money flows directly from Young, Productive Couple to her. With LVT in place, but with her hallowed 'property rights' guaranteed by the state, that couple would still be paying her, only indirectly. And if our Hampstead Widow chooses to stay put, at least it's clear to all and sundry that she does indeed get £98,000 more in pension than our Widow Shivering In Ex-Council Flat.

6. Wot? Taxing income is 'fundamentally wrong' - taxing 'government-protected quasi-monopoly rights' is the way forward!

So there.

17 comments:

chefdave said...

Good post, but as we know, this argument has nothing to with potless widows living in mansions (there must be only a handful in the country), home-ownerists are just tugging on the heartstrings to protect their VI.

Having said that this is a creative solution, and I expect the pensioners would love it. Perhaps we should take this idea to the high street and find out what they think of it!

Mark Wadsworth said...

CD, thanks. The idea only occurred to me this morning so it might need a bit of honing first.

Derek said...

Maybe it does need honing but I like the fact there are no exemptions and hence no "slippery slope". Everyone pays LVT. Simple. A gold star for you, Mark.

Robin Smith said...

Superb! Abolish all taxes, collect all rents. No exemptions, no compensation.

I wouldn't even give them a pension. IF they are capable of living in a mansion on their own they are capable of moving to a place that affords them the rent. If they are not capable then they must be ready for residential care at least. I know this, I am currently wearing the t shirt of elderly care

When faced with their demand for infinite evidence one can never win. Its a divide by zero question. There is no answer to denial of observed facts.

Until power is taken away from them, infinite evidence will always beat you.

Bayard said...

But it's not fair! Why should the Hampstead widow get so much more money than the Glasgow one just because she lives in a big house?

Mark Wadsworth said...

D, thanks.

RS, the Poor Widow Bogey is an important non-argument, just like "we will need an army of valuers". The fact that neither is valid does not mean we don't need some sort of answers.

B, exactly, you have hit the nail on the head!

Under current rules, Hampstead Widow could trade down and live off the £80,000 annuity she has bought with the net proceeds; under my suggested LVT rules she could trade down and live off the £80,000 extra pension.

In terms of cash flows, they are exactly the same, but the psychology is different; so if my suggested LVT rules are "not fair", then why are the current rules "fair"?

That's not a rhetorical question, by the way.

Ian B said...

I have another suggestion:

Give everyone a free land allowance. Like a tax allowance. All the land in Britain, divided by the population, would be about an acre each.

Let anyone own up to some proportion of an acre, tax free. Now only significant landowners get hit with the tax, and poor people can have a certainty of ownership of residential land that no power can take away.

How about that Mark?

Derek said...

Ian, if that rule was in place, I'd set up five thousand limited companies and sell them each half an acre of my 2,500 acre estate. Problem sorted. No tax due. So that wouldn't necessarily work. And yes, you could change the legislation to make it work by exempting land owned by trusts or LLCs or whatever. But it quickly becomes complicated. No exemptions and a rebate works much better.

In fact a citizen's dividend would act like a tax allowance for land holders, so the tax free land allowance is already built into Mark's standard LVT/CD plan. There's no actual need for a free land allowance.

Ian B said...

Ah, sorry. In my libertopia there's no such thing as corporate personality, so the problem doesn't arise. What about just saying that free half acres only apply to individuals, not any sort of corporate personality (companies, foundations, charidees etc?) I don't see that as being unduly bureaucratastic considering the nightmarishly confabulated tax regimes we currently have.

What about the principle though, legalistic practicalities aside?

Mark Wadsworth said...

Ian B, the principle is superficially fine, but that's the sort of thing that Mugabe says and it always goes horribly wrong. The Tom Paine system is much simpler and achieves a similar result with a minimum of hassle.

Even assuming a government of saints, on a practical level:

1. Ag land is worth £5,000 an acre; most residential land a hundred times as much £500,000/acre and prime land in town centres a hundred times as much as that £50 million/acre, so who decide who gets the valuable acres and who gets the rubbish ones in the middle of nowhere?

2. What about children who miss out first time round; where does their half acre come from once everything has been allotted?

3. Why split up farms? The way things are, it is far more capital or labour efficient to have large farms. Small holdings and intensive farming is far more productive in terms of output/acre, but rubbish in terms of output/£ cost input.

4. What if somebody goes abroad - can they sell their land or rent it out while they are away?

5. So, as Bayard explains, Tom Paine put his thinking cap on and suggested simply that all land be taxed, a teeny bit spent on core functions of the state (5% of GDP is quite enough) and the rest dished out as a Citizen's Dividend.

6. So by definition, a median household in a median house (or a median farmer on a median farm etc) gets paid exactly enough CD to be able to pay the tax, and to all intents and purposes we live in a tax-free world - with the added benefit that there's no land price speculation, no house price and credit bubbles, financial crises and recessions, and land is put to best or most profitable use

(which does not mean that houses get knocked down and replaced with glue factories; it means that large households live in large houses and small households live in small houses; that high earners live in nice areas and lower earners live in not so nice areas).

7. The other bonus is that LVT is an "in your face tax", so politicians would find it difficult to increase it, unlike income tax, VAT and NIC hikes which go through with barely a murmur.

Old BE said...

Why not just have the government own all the land and charge market rent for it? Isn't that what happens in Hong Kong?

dearieme said...

"£80,000 a year extra to .... pass to her heirs": which, being surplus income would be free of Inheritance Tax, which her mansion would not have been. That'd get Labour screeching, under that trustafarian Ed Milibrown.

Mark Wadsworth said...

BE, don't get so hung about 'ownership'. The government can charge a tax or ground rent whether it is registered as legal owner (in the traditional sense) or not, see also 'Council Tax', 'Business Rates' 'TV licence' etc. Or indeed 'income tax', the government can tax your labour and profits without legally 'owning' them.

D, even my modest 1% flat tax on residential land/buildings was designed to replace Inheritance Tax (which raises a paltry £3 billion a year, exactly as much as the TV licence fee, and barely a tenth of Council Tax £25 billion, which would also be scrapped as separate taxes).

As it happens, Polly Toynbee will turn 65 later this year, so she might well benefit from this. So what?

Ian B said...

Mark, I didn't mean giving everyone a free half acre. I just meant, you can own what you like, but you pay LVT on everything over a half acre (or whatever). If you own 10 acres, you pay tax on 9.5 acres.

So somebody with just a residential plot isn't going to pay any LVT, but Prince Charles pays a great deal.

There's a total free market in land.

Also, all those "free half acres" will give you a free market price on which to base your LVT assessments.

Mark Wadsworth said...

Ian B, the principle is fine, but it fails on practicalities (and if something doesn't work in practice, that means the principle was actually flawed - see e.g. Prohibition).

The 'half acre' is fairly meaningless, given the enormous disparity in land values in the UK or any other modern country (see point 1 of my previous comment).

So it would be fairer or simpler to exempt the first £30,000 in value per person (or whatever).

But this exemption would only benefit people who 'own' land worth more than £30,000 and would not help anybody else (although you can even this out via the CD bit of the equation).

Far better to tax all land at a flat rate and dish it out as a CD, that way everybody can afford to pay the tax on their 'half acre'.

PS, in practise, if we did the Tom Paine method, one household's CD would be enough to pay the LVT on about 10 acres of farmland; or on normal sized residential plot; or on a flat in a high rise block in a swanky part of town (or whatever the precise maths of this are).

It is up to each household to decide how to spend its. If you want more than that, then you are a net payer; if you need less than that, you are a net beneficiary.

"There's a total free market in land."

The problem is that land is inherently a monopoly and buildings are owned by members of a cartel known as 'NIMBYs'.

Sure, there is a free market in small shares in that monopoly/cartel (in the same way as there is a free market in shares in Sky or BT or water companies) but the underlying subject matter is not a free market (when you buy shares in Sky or BT or a water company, you are paying for the value of the monopoly profits).

Ian B said...

Ian B, the principle is fine, but it fails on practicalities (and if something doesn't work in practice, that means the principle was actually flawed - see e.g. Prohibition).

Prohibitions work well in practice, if you're a prohibitionist. The purpose of Prohibitionism isn't to stop people doing X, it is to make X illegal, so that people who do X can be persecuted. You don't think ASH actually want people to stop smoking, do you?

On the main point, it depends what you want your tax to do. I want people to have land to live on. I think an LVT designed to discourage land rental may be worth considering. Isn't that the purpose of Georgism?

By alloing people an untaxed plot to live on, they also get security of residence. It's a win-win.

What they choose to pay in the market for their residential plot- swanky Mayfair or cheap'n'cheerful Kettering, that shouldn't be a concern, should it?

I'm not sure the problem is entirely NIMBY in character. I presume you've argued with land restrictionists. Invariably, they are in favour of land use restriction even if it financially harms them e.g. by high rentals, because they have swallowed the "green and pleasant land" narrative, and just hate houses like they hate motor cars, and anything beyond Amish level development. See the recent hullabaloo over "our" forests for an example.

The selfish core is protected by a huge penumbra of useful idiots.

Mark Wadsworth said...

IanB, of course we are agreed that Prohibitionism is a shit idea, that was just an example.

"On the main point, it depends what you want your tax to do. (1) I want people to have land to live on. (2) I think an LVT designed to discourage land rental may be worth considering. (3) Isn't that the purpose of Georgism? (4)"

1) To replace all other taxes, esp. those on incomes or real personal wealth. And sort out these credit/land price bubbles/recessions. Etc (Cont. page 94).

2) Well yes of course.

3) Good, that sort of goes hand in hand with (2).

4) I think so, I'm just saying what I've worked out for myself.

"By allowing people an untaxed plot to live on, they also get security of residence. It's a win-win. (5)

What they choose to pay in the market for their residential plot- swanky Mayfair or cheap'n'cheerful Kettering, that shouldn't be a concern, should it?" (6)


5) it's a maths thing not a fundamental philosophical point. I would argue, by giving everybody a CD sufficient to pay the tax on enough to live on (or farm, or trade from), you can achieve the same thing more simply.

6) Of course, that's up to the markets. But under a full-on LVT/CD system, some people may choose to share a small house with a lot of friends and spend their spare CD on booze or investing in stocks and shares; I don't see why people should get a 'personal land allowance' but not a 'personal booze' or 'personal stocks and shares allowance'.

A 'personal booze allowance' or 'personal stocks and shares allowance' are clearly nonsense, and to give a 'personal land allowance' would be an indirect subsidy to land - everybody would occupy as much land as they can within their 'personal allowance' even if actually they'd be better off living somewhere smaller/cheaper and spending the excess of CD over LVT on booze or investing in stocks and shares.