Let's be clear what we are talking about

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?