Sunday, 19 April 2015

Modern Monetary Theory and Land Value Tax

Random left the following lengthy comment on Lola's post on why LVT is inevitable, tidied up as follows:

Every pound of govt spending comes back as taxation.

To realize this you have to think harder about what taxation really is for. It certainly is not to 'fund' spending. It is to stop spending become inflationary. Once you realise this you see people voluntary tax themselves - it is called 'saving.' In MMT it is referred to 'voluntary taxation.'

So we get the equation Govt spending = local saving + net imports (foreigners saving) + tax.

Now we can argue over who gets compulsory taxation and who gets voluntary taxation. But it has nothing to do with public services.

The main power of billionaires (even if they don't know it yet, and if rich people are reading this, then yep) is the ability to spend their billions on real resources and cause inflation. Then govt has to cut spending/raise taxes to stop it.

Once you see things from the MMT point of view it is very clear. For example in developing countries capital controls won't be all that is needed. The govt needs to ban imports of luxury goods as rich people spend money on foreign goods and the exchange rate declines. There is tons of material on this - Neil Wilson's site on economics displays things very clearly to accountants and he hammers these types of points home. Bill Mitchell's blog is good as well.

There is a lot of truth in that, but all roads lead to Rome, and the kind of tax which dovetails most neatly with that is a tax on rents and monopolies (mainly land) i.e. LVT.

Why is LVT therefore vastly preferably to taxes on income, assuming its main aim is to address inequality, lack of private saving and current account deficits?

1. Equality is A Good Thing in an of itself, provided the 'costs' of achieving equality do not outweigh the benefits - there is no point levelling people down, the idea is to level people up.

The prime driver of inequality is land ownership, that is between Baby Boomers and younger generations; but more importantly, the really rich people get most of their wealth or income from land, banking (80% of bank loans are secured on land) and other monopoly rights (landing slots, broadcasting rights etc). As others have pointed out, in the UK there are more estate agents/letting agents than school teachers.

2. Private saving is generally regarded as A Good Thing and there is plenty of evidence to show the negative correlation between land prices and the savings ratio. So keep land prices low and stable and you get more private saving; keep taxes on profits low and you get more investing. Win-win.

3. Constant current account deficits are A Bad Thing, they are a sign that the domestic economy is running below potential. The UK's current account deficit is running at about 6 per cent of GDP. How would LVT help..?

i. Removing taxes on economic activity helps the economy grow; reducing the average overall rate from about 50% to 20% would mean that the economy expands by about 12% (the deadweight cost of taxes are the tax rate cubed). So people are more likely to spend their money in the UK because there is more to spend it on. So that's the trade deficit sorted (see Denmark in the 1960s).

ii. More private saving = less importing.

iii. The bulk of monetary inflation is down to land prices; with LVT in place, this kind of inflation would not be an issue. The natural tendency of free markets and dynamic capitalism is for prices to fall gradually over time (relative to wages i.e. people are more productive).

As to the last paragraph:

4. With LVT, you don't need 'capital controls', which are a recipe for inflation and all sorts of other skulduggery. When foreigners 'invest' in the UK, they seem to love investing in land and other monopolies, as their current profits would largely be collected as tax, there would be less leakage that way. Money which foreigners have earned here fair and square will be taxed lightly and they should be free to take their profits abroad.

5. LVT follows the principle of territorial taxation. Income should be taxed where it arises and not where it is spent. Simple observation tells us that really wealthy people are heartily indifferent to lump sum taxes on housing, what they are very sensitive about is the tax rate on income, especially on remitted income. Leaving remitted income untaxed would therefore encourage them to spend more money in the UK (until the countries they are plundering wise up and impose their own LVT).

6. Banning imports of luxury goods is a nonsense and barely enforceable in practice, in any event, what's wrong with it?

7. LVT is voluntary taxation; nobody is forced to live exactly where they do (and nobody is forced to be a landlord!), it is a tax on consumption of land. If you don't want to pay tobacco duty, don't smoke (or smuggle); if you don't want to pay so much LVT, then trade down, there will always be somebody prepared to trade up (you can't smuggle land into the UK). Everybody therefore has a choice between spending their money on other people's output or on land.

Friday, 17 April 2015

Short List

Leaders of the SNP named after a fish.

Bonus: Leaders of the SNP named after an animal.

Sleazy News

From the Daily Mail:

The 46-year-old had worked at a red light district window in Amsterdam for eight years. However, for the past six of them, she has also been offering her banking services at more than £50 an hour.
Identified only by her ‘professional’ name, she asked clients for requests, saying ‘the sleazier the better’.

She describes her greatest passion as ‘ripping off strangers with PPI, pension charges and subprime mortgages’. Quote, a Dutch magazine, reported that she had a sexual role in a knocking shop while specialising in sadism in her spare time. 

After the magazine broke the story, the brothel confirmed it had fired her over ‘integrity issues’.

Banking in Holland is legal although workers at the De Wallen are not allowed to engage in any activities which could bring the industry into disrepute, such as ‘indecent behaviour’.

Thursday, 16 April 2015

Green Party on top form.

From Professional Pensions:

The Green party wants to halve the amount of tax relief given on pension contributions to fund a non-contributory ‘citizen’s pension’.

In its manifesto, published today, the party said tax relief amount to a "£40bn pound government subsidy" for a failed pension system.

It said: "The performance of the private pensions industry is dismal - the total paid out in private pensions each year is no more than the subsidy that the government gives the industry."

The Greens said they would halve the amount paid out in tax relief and would further limit the annual allowance to make the sure more of the subsidy went the low paid.

It's almost as if they have been reading this 'blog... (plenty of others from left to right have said the same thing, of course, there's no copyright in facts).

"Tory housing minister Brandon Lewis said"

From The Daily Express*:

"Thanks to our long-term economic plan, house building in England is at its highest level since 2007.

"Our schemes are helping hundreds of families every month to buy their own home and we will go further by allowing new homes to be built specifically for young first-time buyers.

"Our Government-backed schemes will help a million more people become homeowners in the next Parliament.

"Our long-term economic plan is getting Britain building again and is helping people achieve their dreams of home ownership – the biggest threat to this is Ed Miliband in government."

The English Housing Survey said:

25 to 34 age group
Owner-occupiers - 47%
Private renters - 36%

25 to 24 age group
Owner-occupiers - 36%
Private renters - 48%

To me that looks like a catastrophic fall in owner-occupation rates with a corresponding catastrophic increase in private renting. Clearly Mr Lewis knows something we don't.

The fact that the rot set in under New Labour is a separate topic, the 2013-14 survey tells us that the figures for 2003-04 were::
25 to 34 age group
Owner-occupiers - 59%
Private tenants - 21%

* Emailed in by MBK who knows I love this shit.

LVT is inevitable...

I have a little hobby of spotting bits of news about how taxes are getting harder to collect on labour and capital.  A good bit on that is here.

Given things like this you think that Governments would eventually be forced to tax the things that can't be off-shored, like land say.

Either that or you'll get a lot of government hysteria to push for 'global' taxation.  I seem to recall the EU banging on about that.

But overall, I think that some form of LVT is going to arrive.

Greenbelt Quiz

Mark's quiz on manifestos that he linked to reminded me of this fun quiz on Estates Gazette about Hallowed Greenbelt. It's not that hard to get full marks (tip: the dull countryside around Oxford is greenbelt, the beautiful countryside around Chipping Norton isn't).

The Laffer Curve in action

From City AM:

Corporation tax rates have been falling globally for decades. In 1981, the average rate across the OECD was 48 per cent. It has now plummeted to 24 per cent. In the UK, the decline has been even more stark, with the rate dropping from highs of 52 per cent to just 20 per cent today...

Despite the reduction in the UK’s main rate of corporation tax since 2010 from 28 per cent to 20 per cent, revenues have remained remarkably resilient. In 2013-14, onshore corporation tax receipts (excluding the volatile North Sea oil and gas sector) were £35.7bn compared to £35.3bn in 2010-11.

In the year so far, onshore corporation tax receipts have been 10 per cent higher than over the same period last year – despite a further two percentage point reduction in the rate. The simple truth is that higher taxes do not always lead to higher revenue.

Also from City AM:

Changes to stamp duty in December’s Autumn Statement mean that homes worth below £1m received a tax cut, but those at the very top end of the price scale have to pay a far bigger levy. Under the tax changes, the average London home selling for £510,000 saw its tax bill cut by £4,900. But a property worth £2.1m saw its tax bill rocket by £18,750.

In the first quarter of 2015, there were 638 prime London transactions, down from 949 in the same period a year earlier – a fall of 33.1 per cent. And the stamp duty haul raised from those sales fell from £125m to £93m, down 25.6 per cent.

Of course, this is City AM, so they pretend that corporation tax and SDLT are the worst taxes; they are bad taxes but far from the worst.

So they seldom mention the Laffer Curve as it applies to the worst taxes VAT or National Insurance; the trick here is to look at total tax receipts from all taxes on economic activity. So while a cut in VAT or NIC rates would no doubt mean a reduction in VAT or NIC receipts in isolation, you have to balance that with increased revenues from income tax or corporation tax (the rather less bad taxes).

(With good taxes there is no Laffer effect whatsoever, of course.)

"Do you know your Conservative manifesto from your Labour one?"

There's an excellent online quiz at the end of this load of shite at the Telegraph.

I got 9/10 by simply assuming that whichever party actually said it is the opposite of the one which you would expect to say things like that, apart from a couple which I knew for sure.

Wednesday, 15 April 2015

NHS - Fun with numbers

Conservatives pledge another £8 billion a year on the NHS.

Labour say that they would only spend another £2.5 billion a year on the NHS.

Lib Dems match the Tories' pledge of £8 billion a year more on the NHS.

Greens promise to employ an extra 400,000 people in the NHS, cost unspecified, £20 billion a year, maybe?

UKIP plans an extra £2.4 billion a year for the NHS (over five years = £12 billion headline figure).

What nobody can explain is that one-third of the NHS budget (over £100 billion a year) goes on doctors' and nurses' salaries and actual medicines, but nobody knows where the other two-third goes.

I am sure that there is plenty of other worthwhile stuff in there, like ambulances and ambulance drivers, cleaners and so on; and there is plenty of crap like translating anti-smoking leaflets into 128 different languages and all the PFI fraud and waste, but is there a breakdown of it?

The Taxpayers' Alliance have scratched the surface occasionally, well done them.
The comments thread here has descended into a flame war about completely different topics.

Fact 1: the NHS is just as good as most other healthcare systems in terms of value for money. We spend a bit less and get a bit less.

Fact 2: there is a huge amount of waste and fraud in the NHS.

Conclusion: there is a huge amount of waste and fraud in most healthcare systems. That's what we should be addressing.