At last weekend's drink up organised by DK, I was lambasted for my support for Land Value Tax, which I see not only as a welcome simplification* but also as the 'least bad tax' (per Milton Friedman).
DK himself advanced the Poor Widow Bogey, whether he was playing Devil's Advocate or whether he is at heart a member of Tory land-owning aristocracy I do not know, and I still haven't summoned the energy to list his arguments or go through the counter-arguments.
Harry Haddock advanced the 'market gardener' anti-LVT argument, which runs briefly as follows:
1. I am a market gardener on the edge of town with a lot of Valuable Fruit Trees on my one acre.
2. The town expands, and all the surrounding bits of land are sold off for development.
3. My hitherto agricultural land becomes potential building land, and so its market value jumps from a few thousand pounds to a million pounds (assuming that getting planning permission is a shoo-in).
4. A fiscally neutral LVT rate would mean that I have to pay about £20,000 in LVT**.
5. As a market gardener, I can't make that much money so but I would be forced to sell my land and I would lose my Valuable Fruit Trees.
This is not actually a big issue (but difficult to explain in a pub setting) so I'll do it here:
1. Economics says, people put their assets to most efficient use. The market gardener has a choice: sell off your one acre, bank £1 million cash and - if you so wish - buy yourself 200 acres of farmland. Sure, you might not be able to take your Valuable Fruit Trees with you, but hey. Maybe just buy 50 acres of farmland and spend £750,000 on replanting the Valuable Fruit Trees, or something?
2. English land law says, you are allowed to enter into a Restrictive Covenant to devalue your own land. See Tulk v Moxhay (The Leicester Square case). So if the market gardener is so wedded to his trees, he can enter into a Restrictive Covenant with surrounding home owners and/or the local council and their heirs, successors and assigns to use the land for market gardening in perpetuity and never to build on it. The market value of the land thus reverts back to normal agricultural value of £5,000 or so, for which LVT of £100 or so is payable every year.
3. Of course, once Market Gardener pegs it, unless his kids want to follow in his footsteps, they will be pretty miffed to find out that what they thought was a site ripe for development is in fact worthless, but hey, that's life.
If you prefer words to logic, Winston Churchill no less covered this topic in a speech much cited by Land Value Taxers (most recently Jock Coats).
* Here's the list again: LVT could and should replace Council Tax, Business Rates, SDLT, Inheritance Tax, Capital Gains Tax, the TV Licence fee, Insurance Premium Tax and VAT on domestic fuel, s106 agreements and roof taxes; net of agricultural subsidies, Housing and Council Tax Benefit, VAT zero-rating for new residential construction. Total net revenues in the order of £60 billion = 4% of GDP = 10% of all current tax revenues.
** HH didn't actually say £20,000 (I don't know if he was imagining a higher or lower figure), but this is roughly the amount that would be due were a single LVT to replace all the taxes less subsidies in the above list on a fiscally neutral basis. And yes, of course there is massive waste in gummint spending and hence scope for cutting taxes, but let's cut the worst ones first (VAT and Employer's national insurance - total revenues £120 billion - twice as much as property/wealth taxes), eh?
A simple solution
1 hour ago
9 comments:
"'least bad tax'": it's so pleasing to see decent English, rather than the vile "least worst".
Then of course there's that nice Mr Smith:
"Both ground-rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them."
Another factor in this is that currently we don't grant enough planning permission for building, which creates a huge artificial difference between land with planning permission and land without.
We need to take a more positive attitude to development - if you own land, and unless there are good reasons not to, you should be able to develop it.
Jock, I know; he also said "The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."
But then people throw back Adam Smith's Four Tenets of taxation, one of which is "levied when it's convenient to pay" which gets us back to The Poor Widow Bogey.
Anon, quite true, but I don't have the energy to take on the NIMBYs and Greenies.
My answer to his question was a little shorter.
Tough shit.
The movement of resources from low value to higher value uses is the very definition of wealth creation.
Will respond to this later. Good to meet you both the other day, BTW. Would have stayed longer but couldn't find any last minute rooms in any budget hotels, and being a cheapskate, I opted for the last train home, that being about 9:30 on Saturday, but 11:30 every other day including Sunday.
How fecking stupid is that?
About the "poor widow" -- see Widow's skirts at http://www.wealthandwant.com/themes/Widow%27s_Skirts.html
and Bill Batt's article "Property Tax Relief Measures: Answers to the 'Poor Widow' Argument" at http://www.wealthandwant.com/docs/unindexed/Batt_poor_widow_solution.htm
I came across your blog by accident in a google search and was so intrigued i stayed a while to read it.
I'd liketo take a moment to comment on your "point 2" if i may, the idea of a restrictive covenant.
In the days before the unwanted, unloved and unworkable welsh assembly government we had a Welsh Office and one Wiliam Hague, soon to be "Failed Leader of The Tories" ran it.
Some clown had the brilliant idea that Newport should 'ape'Cardiff and build a barrage across the River Usk, filling the mudbanks upstream with sewage-filled muddy sludge and thereby sell large parts of run down disused riverside docks as yuppie flats.
To this end a farm opposite Caerleon was compulsorily purchased to provide a riverside walkway and other social amenities. The conditions of sale included a restrictive covenant that the land was not to be used for housing development in an area that had seen massive expansion and Newport Borough Council readily agreed.
Then William Hauge said 'Niet' from his ivory tower in Cathays Park and the scheme collapsed.
And what became of this land purchased under a covenant which agred there would be no building ?
See for yourself.
Fire up Google Maps, switch to satellite view and lok for NP19 7LJ. I type this from one of the buildings clearlybuilt there in breach of this restrictive covenant.
JOG, that's all very technical. Maybe the RoC only kicked in if the yuppie flats on the other side were built? And it depends in whose favour the RoC was entered into.
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