Saturday 20 June 2009

Killer arguments against LVT, not. (8)

I really ought to stop, but that thread is just the gift that keeps on giving:

Ian B: "Still, we are left with an unsolved problem in Georgism. If I do not own my land, the state I am a corpuscle of and empower cannot own it either. It thus has no more right to profit from it than I do."

Syntax notwithstanding, what's his point?

Neither I nor anybody else is a 'corpuscle of the state', but it must be beyond dispute that we are all 'corpuscles of society in general': most of us contribute towards our collective overall wealth (our families, employers and customers need us) and none of us could survive without the inputs of so many others (we need our families, employees and providers).

[Taking this to extremes, if you took a few of these faux-libertarians and dumped them on a deserted island, they would quickly notice that their earnings capacity, overall happiness and life expectancy would plummet like a stone. By the same token, if you took all the taxpayer-funded leeches to a deserted island, much the same would happen; and if you took all the land-owners away, ditto.]

And the basic Georgist or Geo-Libertarian idea recognises this - there would be no taxes on personal or corporate incomes - the only 'tax' would be on the surplus value that all sixty million of us resident on these shores create/have created/might create that currently accrues primarily to land-owners (estimated receipts about twenty per cent of GDP), and the receipts used to defray the 'core functions' of the state (about five to ten per cent of GDP) and the rest dished out as a Citizen's Dividend (about £60 per week per adult, half that for kids, twice that for pensioners).

[And that would be it - no State-run health or education, no Nanny State, nothing.]

So by definition, a median household would find that its LVT bill netted off neatly with its Citizen's Dividend; above and beyond that, it keeps and spends every penny of what it earns - if somebody decides he's had enough and moves abroad, he no longer has to pay LVT but no longer receives the CD. Which is fair enough - from that moment on, that person neither contributes to nor benefits from the efforts of people who live here.

5 comments:

TheFatBigot said...

One of the concerns I have about LVT relates to the point made by Sir Garfield, namely that things done by other people can increase someone's tax bill.

That raises a significant political question - is it fair and just for some individuals to have the power to force increased taxes on other individuals? I don't think it is and am yet to hear of a practical way to prevent it happening.

The idea of a local referendum on development throws up more problems than solutions. What majority is required, who has a vote, are votes weighted according to the impact the development would have on different properties, who pays for the referendum, is a new vote required every time a planning proposal changes (if not, why not), what is the threshold level of increase in value that triggers a referendum, who decides whether that threshold has been reached, what is to happen if the final development is different from the proposal (as often happens and is dealt with by retrospective planning consent where the change is minor)must there be another referendum (if not why not, if so does the development have to be torn down if it is lost)? These a real practical problems.

But the point goes further. Once an individual's tax liability has been increased he seems to have two options if he doesn't have enough cash in his back pocket to pay-up. Either he sells in the short term and pays the tax out of the proceeds of sale (assuming he has sufficient equity in the property) or it remains attached to the land and becomes payable on death or future sale.

There are two problems with this.

First, what goes up can come down. The new shopping centre that initially increases tax can turn into a wilderness of empty units, thereby (presumably) reducing LVT. So what happens then? The situation could arise that Mr Householder can't sell because the property isn't worth enough to cover his mortgage and accrued LVT. It's a familiar enough story of negative equity but there is something objectionable about this situation being brought about by the system of taxation. And, of course, there's then a shortfall in the government's kitty.

The second problem comes from your oft-repeated assertion that anyone who doesn't like the level of LVT can move. Indeed they can, but that costs; although SDLVT will go, conveyancing, estate agency and removal costs will not they will still have to be incurred and often amount to several thousand pounds. Mr Householder is then paying twice as a result of other people's actions which have forced him to both incur higher taxes and, to avoid a repetition of those higher taxes in later years, he incurs the costs of moving. That strikes me as fundamentally unjust. Is he to be reimbursed the costs of such a forced sale? If not, why not? After all the situation has been forced on him by the State against his will.

It must not be overlooked that moving house is not always practical, particularly if someone's work or family commitments require them to be in a particular area. For them there will simply be an ever increasing debt caused by acts outside their control. That is such an unattractive concept that the whole scheme seems to me to be politically impossible.

That there are faults and unfairnesses in current taxes should not blind anyone to the faults and unfairnesses in LVT (of which there are many more than the few I have mentioned here).

Mark Wadsworth said...

OK, do you agree that where a new development depresses the value of existing properties, the developer should compensate the owners thereof? I assume 'Yes'.

So why is it so alien to say that where a new development increases the value of existing properties, the owners thereof should make a contribution?

Or is land-ownership a one-way bet, where the losses are socialised and the gains are privatised?

The idea that masses of people will be 'forced to move' is nonsense - there may be the occasional case, of course, but as house prices are set by the average income of people in the area, if more people were selling up than buying, prices would drop again to where people can afford the LVT.

And finally, there is such a thing as 'sensible borrowing' - if you worry that your home is going to go up in value, then go on the safe side and buy somewhere a bit cheaper - hey presto! And there is such a thing as 'renting', where you also face the risk that an area becomes more desirable and rents go up and you are 'priced out'.

I know you're a barrister and will argue whichever side you are arguing, whether you believe in it or not, but you appear to refuse to sit down and think about the mess that we are in because of the current tax system (and obsession with house prices and property values), and how much nicer it would be if we only had one major tax, LVT.

Would it be perfect? No, of course not, but it would be as good as it could possibly be.

TheFatBigot said...

No I don't agree that developers should compensate homeowners where a development reduces the value of existing housing. So, that's that one out of the way.

And, no I don't argue points here for the sake of it - I did so when I was working because it paid the bills and helped to keep me plump and jolly. That was work, this is me.

I don't think there can be an objective view of whether LVT would be "better" than the basket of taxes we have now.

Of course the present ones have their down-side but at least most of them are linked to one's ability to pay. I think this is an important point. LVT is akin to CGT in that it attaches to increases in capital value which are not caused or earned by the property owner. Where I find it objectionable is that it attaches to nominal increases in capital value whether or not they are realised during the period in which the tax is levied.

Obviously Income Tax attaches to income (OK, billings for the self-employed rather than cash receipts) so if you have received more you have at least had the folding stuff from which you can pay the bill (and if you have billed more than you received you can factor your invoices or negotiate a facility with your bank). CGT attaches to gains once assets are sold, while they go up-and-down in value during the time you hold them you don't see a penny and don't have to fork out. Whatever the other drawbacks of these two taxes, they only call on people to hand over wonga when they have wonga.

Council tax is the only form of individual taxation I can think of that requires you to pay whether you have any money (other than the telly and car taxes but you choose whether to have a telly or a car). That is one reason why council tax is so deeply unpopular.

I don't think this is a side-issue, I think it goes to the core of the argument. Is it fair to replace a range of taxes that, generally speaking, are dependent on your ability to pay with a tax that has no regard to ability to pay out of currently available resources? I don't think it is.

It isn't just about what will make the most efficient use of the resources in the country and will balance capital assets to what one has personally "earned". It is also about the wider issue of whether it is fair to tax people without taking into account whether they can reasonably be expected to have the money to pay it. That is a political question not an economic one and you know my answer for what it's worth (which is, of course, very little).

If you want to tax "unearned" appreciation in land value, why not remove the CGT exemption for principal residences and prevent businesses rolling-over such capital gains into new premises? Then people are only taxed once they can afford to pay it.

Mark Wadsworth said...

TFB, look, you've listed all the things that the Vested Interests use to justify subsidies for home ownership, not one of them stacks up.

What puzzles me is, who are these vested interests? The idea that home owners and land owners are Sacred and their interests go above everything else, but it must be clear to everybody that these eternal property price and credit bubbles and busts are A Bad Thing.

"Of course the present ones have their down-side but at least most of them are linked to one's ability to pay."

Does somebody's rent relate to 'ability to pay'? Yes of course - people with higher incomes rent nicer houses. But If they lose their jobs, they get chucked out; if the area becomes more desirable, the rent goes up.

Does somebody's mortgage payments relate to 'ability to pay'? To a large extent yes, but there is always the risk that you lose your job or interest rates go up a lot.

What you overlook is the economics of it. LVT would reduce the amount of your mortgage, so the total cost of buying is the same - so the LVT would replace other taxes, so the home-buyer ends up BETTER OFF (so can put a bit more away for possible LVT increases in future).

Would LVT relate to ability to pay? Well yes of course, high income people would end up living in the biggest and nicest houses, and also paying the most tax. What's so weird about that?

Why is it that somebody with a low income in a large house has to be subsidised by people with low incomes who don't own a large house?

CGT is a terrible tax because it discourages efficient allocation of housing, as opposed to LVT which encourages efficient allocation.

Lola said...

CGT also discourages efficient investment, or encourages malinvestment.