I have had interesting discussions recently with chaps from The Renegade Economist and Systemic Fiscal Reform, and while I disagree with them on a lot of things (and they no doubt with me), we have a lot of common ground.
It now strikes me that there are two main arguments* why Land Value Tax is superior to just about any other form of taxation (except "user charges" like fuel duties to cover the cost of roads, for example). This is because land values consist of two distinct elements, the location value (which is fairly stable) and the speculative element, that goes up and down in approx. eighteen year cycles:
1. The 'left wing' or 'humane' argument is that 'local services' (as defined) should be paid out of a tax on location values rather than taxes on incomes/production, because otherwise tenants have to pay double - they pay their landlords for the value of local services (because the value is included in their rent); and they pay again for the cost of local services (out of their income tax).
As the tenant's loss is the landlord's gain, this is a transfer from productive workers to land owners. We can extend this to first-time-buyers. A large part of the price they pay for a home is the net present value of local services, for which they themselves will be forced to pay out of their own income tax. For existing home owners, it's neither here nor there whether they pay a bit more income tax or a bit less income tax and a bit more LVT. Those who can cash in are people who can sell up and move abroad; if local services are funded out of income tax, they can effectively claim a refund of all the income tax that they would have paid had they stayed here.
2. The 'right wing' or 'free market liberal' argument is that these house price bubbles/credit bubbles steer the economy in the wrong direction; when the bubble bursts, the subsequent recession more than wipes out any illusory growth during the bubble period and we are back to where we started, instead of having gradually progressed to a more sophisticated and successful economy**.
Mathematically, and in real life, high house prices drag land values up with them. If there were a fairly savage tax on the 'bubble' element of house prices or land values, which is reflected in capital values but not in rental values, this would dampen down any bubble before it had started.
Just sayin', is all.
* There is also the Christian angle that God created The Earth for mankind to share; if you declare land to be your own and hence deprive others of the benefit thereof, it is only fair that you compensate your fellow man by paying for the privilege; and the Greenie angle that it discourages 'urban sprawl', which in turn reduces commuting distances (and pollution) and leaves the countryside untouched. Fair points as well, but I am neither a Christian nor a Greenie.
** Wouldn't we be in a slightly better position to 'weather the downturn', if instead of having an army of soon-to-be-unemployed and/or repossessed property developers, buy-to-letters, equity release junkies, estate agents and structured finance derivative traders (whose collective efforts over the last ten years have, with the benefit of hindsight, added bugger all to the value of the economy), we had an army of scientists, entrepreneurs, bio-chemists, plumbers, maths teachers, bus drivers whatever?
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7 comments:
User charges are not that fair being highly regressive in their effects (Jeremy Clarkson comes up to London in a car which averages 4 miles to the gallon.Clearly he is so demented that some fuel duty is not going to matter to him.Meanwhile some geezer who loses his job locally but is lucky to find one miles away will be really hit by the road user fee,whatever form it takes.)
User fees are surely like uncontrolled land values: a drag on legit economic activity.
Better the straight LVT solution: when a new road is built or an old one improved,the land values go up nearby so you can recoup the whole cost of construction from a land tax on the raised property values.
DBC, sure, LVT should cover the capital cost of the infrastructure, but I still think that fuel duties should cover the running costs. Mr 4-mpg still pays ten times as much per mile as Mr 40-mpg. And there's also the environmental aspect and the fact that oil is a scarce resource that has to be imported.
I'm not a christian, but my PoV is that Property (the right to exclude) is a taxable externality.
And you don't have to be a "Greenie" to agree that sprawl is not always a good thing. Sprawl increases the cost of those needing to travel across it to work, for example (here in Oxford it's probably no coincidence that all the council estates are tagged onto the edge of town - it's the poorest that are hamered for this travel time and distance). And, as has been seen in the US, sprawl also "desocializes" - creates areas that are essentially just moving car parks with no real person outside their tin box communicating with each other.
But good stuff; I'll see you later.
If there were a fairly savage tax on the 'bubble' element of house prices or land values
That's rather a big 'if'.
How would we determine what the bubble element was. Unless we had some unambiguous measure to determine the 'excess price' we end up with the government planning expert who is subject to all the human frailties telling us. That's hardly a libertarian solution.
Bubbles are obvious after the event. At the time, hubris makes sufficient of us blind. If that wasn't true then bubbles would never occur.
TDK, bubble element is easy. You stick a ruler on this graph touching land values (£25k in 1995), so that it slopes up gradually on the right (parallel to rebuild cost line, let's say), and everything above that is bubble.
1993, not 1995.
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